B&W to Spin Off Power Generation from Nuclear Business
On Nov. 5, The Babcock & Wilcox Co. (B&W) announced that its board of directors has unanimously approved a plan for the tax-free spin-off of the company’s power generation business to B&W’s shareholders, in the process forming two independently traded companies. In its third-quarter earnings call the following day, company executives emphasized that the two businesses are not for sale and that operating as two separate companies would take advantage of their different business models.
Although third-quarter 2014 revenues of $737.9 million represented a decrease of $36.9 million, or 4.8%, from the third quarter of 2013, B&W’s Power Generation Group (PGG) revenue and operating margin have shown improvement over the first half of the year, and the Nuclear Operations segment recorded its highest ever third-quarter revenue while maintaining its operating margin.
In a press release, E. James Ferland, president and CEO of B&W, said, “After an extensive and thorough evaluation of a possible separation, the B&W board concluded that the standalone businesses will benefit from independent management teams, each equipped with the resources, strategic autonomy and financial flexibility to create significant long-term value for their respective shareholders.”
The B&W name will be retained by the PGG business, a leading technology-based provider of advanced fossil and renewable power generation equipment that includes a broad suite of environmental controls, products, and services for power and industrial uses. This business is project-driven, with a solid base of recurring aftermarket services revenues—accounting for about half of the company’s revenue, Ferland said on the earnings call.
On the Nov. 6 call, Ferland said the PGG “is turning the corner” and “expanding its international and renewable reach.” The bid pipeline has increased noticeably, he said, with a large number of international coal projects expected in the fourth quarter. The industrial environmental market also presents good opportunities for growth. Overall, the company expects “a minimum” 10% growth in power revenue in 2015, based on backlog and bookings.
Ferland underscored that the PGG is a global business, operating in 13 countries plus three more when joint ventures are included. Though the coal market is “consolidating,” existing and new industrial and environmental work is a growth area.
BWX Technologies (BWXT) is the name that will be given to the Government & Nuclear Operations business, which will consist of the Nuclear Operations, Technical Services, Nuclear Energy, and mPower businesses. That business is a leading supplier of nuclear components and fuel to the U.S. government; provides technical, management and site services to aid governments in the operation of complex facilities and environmental remediation activities; and supplies precision manufactured components and services for the commercial nuclear power industry. It is also active in the Canadian nuclear sector.
Though the mPower small modular reactor development project has experienced difficulties, executives said that initiative had stabilized and continues with an annual spend of $15 million. Chairman John A. Fees said there is “some level of interest” in the mPower reactor and that the company continues to work with the U.S. Department of Energy as well as U.S. and international investors and partners. He added that BWXT would also be pursuing opportunities in adjacent markets for growth.
The company said it believes the spin-off “will result in material benefits to the standalone companies:
- Flexibility to deploy and execute a focused capital structure consistent with the strategic priorities of each business
- Increased opportunities to pursue external growth strategies as independent companies
- Ability to attract an investor base suited to the particular operational and financial characteristics of each company
- Greater management focus on the distinct businesses of power generation and government and nuclear operations”
Upon completion of the spin-off, expected mid-summer 2015, Ferland will become chairman and CEO of the new Babcock & Wilcox. Fees will become executive chairman of BWX Technologies. Peyton S. (Sandy) Baker, currently president of the company’s Government & Nuclear Operations Group, will become president and CEO of BWX Technologies.
—Gail Reitenbach, PhD, editor (@GailReit, @POWERmagazine)