THE DEAL (New York) -- Babcock & Wilcox (BWC) , the Charlotte, N.C.-based power equipment and services provider, announced Wednesday, Oct. 1, that its board of directors is considering whether to separate its power generation from its government and nuclear businesses into two publicly traded companies.
The announcement comes as no surprise to Blue Harbour Group LP, an activist based in Greenwich, Conn., which made a presentation at the Active-Passive Investor Summit in New York on April 22 explaining its investing thesis on Babcock. Blue Harbour founder Clifton Robbins said at the time Babcock which was trading at 7.5 times forward Ebitda and 12.4 times forward P/E, could, through asset sales and cost containment, add to its per share value and attain up to $49 per share. One of the ways to attain that value would also be a split of the businesses, Robbins said.
Then on May 1, the firm filed a 13D with the Securities and Exchange Commission, disclosing that it raised its stake from 1% to 5%-plus; the firm now holds a 6.5% stake in the company.
A source familiar with the matter said Blue Harbour has been meeting with Babcock since the spring.
Blue Harbor, founded in 2004, manages about $3.2 billion and focuses on the small- to mid-cap arena.
The announcement was well-received by investors. In trading today, the company's share price spiked 7.98% to to close at $29.90 -- near its 52-week high of $29.93.
"As you look at the two businesses, they both have very different characteristics and growth profiles so it makes sense to evaluate a separation," said a person familiar with the company. Last year, the power business generated $1.5 billion in revenues and the nuclear side had $1.7 billion in sales.
"It used to be that demergers happened once in a blue moon, but now they are quite common," said a source. Indeed, two similar deals were announced this week: eBay (EBAY - Get Report) spinning off PayPal-- a transaction for which Carl Icahn had been pushing -- and Nisource (NI - Get Report) separating its utilities and oil and gas businesses.
Babcock noted that there can be no assurance that a separation will occur or, if a separation is approved, its terms or timing. However, the company does plan to provide an update on its earnings call, scheduled for November 3.
Babcock has retained JPMorgan Chase & Co. as its financial adviser, with Paul Dabbar and Michael R. Lynch leading the deal team. Robert Profusek, a partner at Jones Day, and David A. Katz, a partner at Wachtell, Lipton, Rosen & Katz are serving as legal advisers. - David Marcus contributed to this report.