McDermott International has reviewed its portfolio as part of the integration process resulting from its combination with CB&I earlier this year and decided to divest two of its businesses and use the proceeds to reduce debt.
McDermott said on Tuesday that this decision reaffirmed the company’s commitment to its core capabilities as a vertically integrated provider of technology-led onshore and offshore EPC/EPCI services.
As a result of the review, McDermott said it has determined that its storage tank business and its U.S. pipe fabrication business are not core to the company’s long-term strategic objectives as a vertically integrated supplier with strong pull-through from technology.
In particular, McDermott has determined that these operations offer limited pull-through or cross-selling opportunities and, in some cases, their ability to pursue third-party work aggressively can be hampered by internal considerations. As a result, McDermott is developing plans to seek buyers for each of the two businesses, the company explained.
David Dickson, McDermott’s President and Chief Executive Officer, said: “Our intent would be to seek the kinds of owners who would value the significant long-term growth potential of each business and who would thus provide attractive prospects for employees and customers.”
Combined revenues of $1.5B
The two businesses, which McDermott expects to sell separately, had combined 2017 revenues of approximately $1.5 billion, 2017 backlog of approximately $1.4 billion and approximately 5,350 employees.
McDermott anticipates proceeds in excess of $1 billion and is targeting completion of the transactions during 2019. It expects to use a majority of the proceeds to reduce the debt under its $2.25 billion term loan.
McDermott will retain its fabrication yards that fit the company’s vertically integrated model with their ability to deliver fully modularized and complete facilities for offshore and onshore projects, located in Altamira, Mexico; Batam Island, Indonesia; Jebel Ali, Dubai; Dammam, Saudi Arabia; and Qingdao, China.
Also on Tuesday, McDermott reported revenues of $2.3 billion and net income of $2 million for the third quarter of 2018. This compares to $959 million in revenues and net income of $95 million in the corresponding period of 2017.
The company’s income in 3Q 2018 was largely offset by $103 million of costs related to intangibles amortization, CPI and transaction costs associated with the combination. Net income in the quarter was also unfavorably impacted by higher than expected tax expense.
At the end of the third quarter of 2018, McDermott’s revenue opportunity pipeline was $80.3 billion, primarily driven by NCSA and MENA regions. The revenue pipeline is comprised of backlog of $11.5 billion, bids and change orders outstanding of $20.7 billion and target projects of $48.1 billion.
McDermott’s gross debt guidance for second half 2018 is about $3.6 billion.
Offshore Energy Today Staff