KBR Shares Surge Following Activist Shareholder News
Investing.com -- KBR, Inc. (NYSE:KBR) shares rose by 5% today after the Wall Street Journal reported that activist investor Irenic Capital Management has taken a stake in the company and is urging it to spin off its private sector segment. This move is expected to increase shareholder value by as much as 50%.
With a market value exceeding $7 billion, Houston-based KBR has seen Irenic accumulate more than 1% of its shares. Irenic's strategy involves advocating for the separation or sale of KBR's sustainable technology solutions segment. Although this segment represents less than a quarter of KBR's revenue, it has generated a significant portion of the company's operating profit this year.
The activist investor is expected to argue that splitting the company into two distinct segments, each with unique growth and margin profiles, would be beneficial. The sustainable technology solutions segment provides services in areas such as chemical processing and energy efficiency to both government and private-sector clients. KBR's other main unit specializes in delivering various engineering and other services to government agencies, including the Department of Defense and NASA.
Irenic's move comes amid investor concerns about the potential impact of federal spending cuts on government contractors. These concerns have been fueled by speculation surrounding the Department of Government Efficiency (DOGE), an advisory committee for presidential candidate Donald Trump that includes Elon Musk and Vivek Ramaswamy. The committee has pledged to identify ways to reduce the federal budget by $2 trillion, although specific strategies have not been disclosed.
Since Trump's election, KBR's stock has declined by more than 17%, a trend commonly seen in the government contracting sector. Nevertheless, Irenic believes that KBR's management has been successful in shifting the company's focus to growth areas and that the market has undervalued the sustainable solutions business due to concerns about the government-focused unit.
Founded in 2021 and led by Andy Dodge and Adam Katz, Irenic has a history of active investing, including securing board seats at Barnes and Theravance Biopharma after advocating for changes. Their involvement has previously led to significant corporate actions, such as Barnes agreeing to be privatized by Apollo Global Management.