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Sept. 24, 2004, 11:05AM
Halliburton making cuts at struggling KBR
Subsidiary may be sold if its stock doesn't improve
By DAVID IVANOVICH and LYNN J. COOK
Copyright 2004 Houston Chronicle
Houston-based Halliburton Co. will lay off workers at its KBR subsidiary as part of a cost-cutting program and could sell the business if the company's stock performance does not improve.
Company officials could not say how many jobs may be lost, as Halliburton tries to wring savings of $80 million to $100 million a year from the money-losing engineering, construction and government services business.
Most of the cuts will come from KBR's management ranks, Halliburton spokeswoman Wendy Hall said Thursday.
Investors have long called on Halliburton to sell off KBR, formerly known as Kellogg Brown & Root, which has been weighed down by a $4 billion asbestos liability and plagued by repeated controversy about its operations in Iraq.
Because of KBR's woes, Halliburton shares have been trading at a substantial discount to competitors in the oil-field service sector, even as oil prices are near record highs.
But outsiders see a company defined by KBR. Although its Web site indicates that it employs 83,000 people, building everything from stadiums to offshore oil production platforms, most outsiders perceive KBR as that company with those contracts in Iraq.
If Halliburton's stock performance doesn't improve once KBR has dealt with its asbestos problems, Halliburton will contemplate launching an initial public offering, spinning off the subsidiary or selling the unit, Halliburton Chief Executive Officer Dave Lesar told analysts Thursday.
Potential buyers
Speaking to analysts at a company-organized conference called "Looking Beyond," Lesar said the company has been approached by a number of potential buyers, mostly defense contractors looking to expand the scope of their businesses.
"By the time we get into the office on Monday morning, we'll probably have a whole gaggle of investment bankers with all kinds of ideas," Lesar said. "I think we'll be inundated with opportunities."
Investors gave a nod of approval to the news Thursday. Halliburton shares rose 18 cents on the New York Stock Exchange to close at $32.24, The stock's 52-week high is $32.70.
Dan Pickering, an industry analyst with Pickering Energy Partners in Houston, doubts Halliburton will really be able to close the gap between its stock and other oil-field service companies without separating itself from KBR. He places the odds of KBR emerging as a separate company at better than 50-50.
Before Halliburton can take such a step, however, it must resolve all outstanding asbestos issues and undergo its reorganization.
Late last year, KBR was forced to seek Chapter 11 bankruptcy court protection because of its crushing asbestos exposure. It has since had its plan approved by the bankruptcy judge. It won't complete the process until it has finished setting up a trust fund to pay the expenses of those who are ill due to exposure to asbestos, or who may get sick in the future.
As part of its plan announced Thursday, KBR will reorganize its five product lines into two divisions: an energy and chemicals unit and a government and infrastructure operation. The latter division would include the company's operations in Iraq.
The restructuring is expected to cost about $30 million. Pickering noted that the annual cost savings could double KBR's operating income next year.
KBR officials also promised to adopt a more conservative business approach. For years, the company has struggled with cost overruns and delays associated with construction of a huge, offshore oil project in Brazil, known as Barracuda-Caratinga.
Though company officials say that project will be completed earlier than they had once thought, they intend to pursue smaller, less complicated projects in the future.
Under much scrutiny
Perhaps KBR's most vexing problem during the last year has been the constant scrutiny of its operations in Iraq. The company has been repeatedly accused of costing taxpayers through overcharging and failing to adequately account for its expenses in Iraq.
With all the questions about its contracts in Iraq, Halliburton has become a rallying cry for those opposed to the war.
Lesar dismissed suggestions Halliburton launch a media blitz to try to counter the public's often-negative impressions of the company.
Within months after the election, Lesar predicted, the public will have only a "vague recollection" of Halliburton.
And within a year "we'll disappear back into the corporate world," Lesar said.
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SA MP calls for asbestos scheme 12:25 AEST Fri Sep 24 2004 An Independent MP wants James Hardie to fund a $1 million scheme advising home owners and renovators of asbestos risks in South Australia. Independent Nick Xenophon said he would introduce legislation next month to state parliament calling for the establishment of a dedicated service to educate, advise and warn the public of asbestos dangers.
NEWS ANALYSIS By Stephanie Anderson Forest A Thorn in Halliburton's Side The Kellogg Brown & Root unit is putting a big hurt on the stock. Is a parting of the ways likely? Chief Executive David J. Lesar might be right when he describes Halliburton Co. (HAL ) as "the most scrutinized company in the world." The $20 billion Houston giant has taken a public beating in the past couple of years over allegations
SPREADING IT AROUND? Nevertheless, KBR remains under fire for charges that it has inflated its Iraq billing. The company has powerful enemies in Congress, including outspoken Representative Henry A. Waxman (D-Calif.), who has attacked Halliburton and its missteps in Iraq as "overcharging the taxpayers." Halliburton denies the allegations and, in fact, on Sept.
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