Summary
- The management team at McDermott International has finally revealed that it is considering selling the company's Technology segment.
- This part of the enterprise is a significant value generator, and it believes it can get $2.5 billion or more for it or could sell part of it.
- This transaction, if completed at or above this threshold on a net proceeds basis, would materially affect, in a positive way, McDermott's financial picture.
- So long as future projects can be executed well and within budget, the firm's troubles would be over following such a sale.
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Amidst fears from the market that the end might be near for McDermott International (MDR), the management team at the firm has come out with a statement claiming that it is exploring a potential sale of its Lummus Technology business in a deal that would generate billions of dollars in cash and solve a lot of the firm's leverage-related issues. Though this would result in the loss of a vital asset that helps maintain the firm as a one-stop shop for clients who are also looking for technology solutions, it's not unreasonable to think that, like Chicago Bridge & Iron when it explored a sale of its technology business before being acquired by McDermott, this deal could create significant value for shareholders by helping the business to materially reduce leverage.
A look at the news
As shares of McDermott have gyrated in recent trading days, the management team has been anything but idle. On September 20th, the company announced that it is exploring a sale of either Lummus Technology in its entirety or a sale of some part of it. According to management, the firm has received unsolicited approaches from potential suitors already, with valuations for the business exceeding $2.5 billion. Specifics have not been offered up beyond that, but it's unlikely the offers were at $3 billion or more, or else management would likely have disclosed that. Even so, this does not mean that a sale of the enterprise might not top that target, since if the firm has already received unsolicited bids, it can probably get something of a bidding war in place.
For all intents and purposes here, what we are talking about is McDermott's ownership over its Technology segment. This includes, among other things, its unconsolidated ownership of its Chevron Lummus Global joint venture affiliate. In management's own language, the segment as a whole is a "leading technology licensor of proprietary gas processing, refining, petrochemical and coal gasification technologies as well as a supplier of proprietary catalysts, equipment and related engineering services. These technologies are critical in the refining of crude oil into gasoline, diesel, jet fuel and lubes, the manufacturing of petrochemicals and polymers, as well as the gasification of coal into syngas. The Technology segment also has a 50% owned unconsolidated joint venture that provides proprietary process technology licenses and associated engineering services and catalysts, primarily for the refining industry".
As one might expect, the patents owned by this segment are extensive in nature. Management stated that, as of this moment, it holds somewhere around 3,100 patents and patent applications. It's uncertain how many of these are actively being used, but as anybody with knowledge of the patent space can attest to, even one patent can be worth a tremendous amount in the right hands. Other patents, in theory, might be worth nothing or close to it.
