Halliburton Plans to Sell Stake in KBR

Fri Jan 27, 5:06 PM ET

DALLAS - Halliburton Co. said Friday it plans to sell a minority stake in its engineering and construction unit KBR through an initial public offering. KBR has generated controversy over how it has become the largest U.S. contractor in Iraq.

Halliburton shares rose 5 percent, a jump analysts attribute directly to the IPO annoucement.

Halliburton, whose chief executive was Vice President Dick Cheney from 1995 to 2000, has been criticized since the beginning of the war in Iraq for multibillion-dollar government contracts. Halliburton is an oilfield services company based in Houston.

Halliburton President and CEO Dave Lesar told analysts the company will file for an initial public offering of shares in KBR with the Securities Exchange Commission.

"We believe the IPO market in general and the public market for engineering and construction companies in particular is very attractive and the public valuation of KBR will benefit Halliburton's stock price," Lesar said in a conference call.

Analysts said the time for such a sale is right.

They noted shares have risen sharply for KBR rivals such as Fluor Corp. and Jacobs Engineering Group Inc. over the past year.

"The public market is looking at the engineering construction favorably as an industry," said Poe Fratt, analyst for A.G. Edwards & Sons Inc.

Lesar said the IPO will be filed after Halliburton turns in its regulatory filing on the company's 2005 performance.

Last year Halliburton filed its report for 2004 on March 1. The company said it has until March 16 under federal regulations.

Some analysts expect Halliburton to submit the IPO shortly after its annual filing, perhaps even simultaneously, then issue the stock perhaps in the third quarter.

Halliburton chief financial officer Cris Gaut said Halliburton will sell a minority stake in the engineering unit with the parent company likely holding on to the rest.

"Our plan at this point is a 20 percent IPO of KBR; however, in response to interest we have received, we may consider selling some pieces of KBR, but we would not expect such sales to change our IPO plans," he said.

On Thursday, Halliburton said its KBR unit posted $3 billion in overall revenue in the fourth quarter when it released its quarterly and annual earnings after the market closed.

Halliburton shares rose $3.78 to close at $78.93 on Friday on the New York Stock Exchange.

Since September 2004, Halliburton said it would either spin off or sell KBR, also known as Kellogg, Brown and Root.

"Over the past few quarters, the language became that Halliburton was favoring the IPO over the sale option," said Jeff Tillery, analyst with Pickering Energy Partners Inc. "I think they made the right move."

Before announcing the plans, Lesar noted Halliburton's resolution of billing disputes related to work in Iraq that include investigations into overcharging for fuel deliveries.

Lesar said the company worked with the government over contracts to rebuild Iraq's oil industry and supply fuel to its citizens under the Restore Iraqi Oil program

"We have been paid a total of $1.1 billion related to our Iraq fuel purchasing work," he said. "This represents 100 percent of the cost we incurred related to this task."

Tillery said he didn't think the resolution of the fuel pricing made a difference in Halliburton's timing of the announcement, but moving forward it won't hurt, either.

"It's really just one less question the new KBR team has to answer when the company is doing its IPO," Tillery said.

"Basically, it demonstrates that there was nothing dark or ominous of how they were operating; they were following instructions from the government."

Lesar said KBR's management team is pretty well in place except for the CEO who will be appointed from outside the company.

"We are down to a short list, and we would hope to have a finalist for that shortly," Lesar said.

Meanwhile KBR's newly appointed CFO Cedric Burgher will oversee the IPO while Halliburton continues its search for KBR's chief executive.

Burgher joined KBR in November. He had worked three years as Halliburton's treasurer, but left in 2004 to work for Burger King Corp.

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