**Irenic Capital Management Urges KBR to Separate Business Units**
Irenic Capital Management, a prominent activist investor founded by Adam Katz and Andy Dodge, has set its sights on KBR Inc (KBR) with a plan to enhance shareholder value. KBR, a Houston-based company providing scientific, technology, and engineering solutions worldwide, operates through two segments: Government Solutions and Sustainable Technology Solutions. The former offers support to defense, intelligence, and other government programs, while the latter focuses on energy and sustainability technology.
**Activist Push for Separation**
On December 19, 2024, Irenic Capital Management announced its intention to advocate for the separation of KBR’s Sustainable Technology Solutions segment from its Government Solutions segment. The move comes amidst a sector-wide de-rating of government contractors, including KBR, due to perceived risks associated with the incoming Trump administration. Investors have speculated that the Department of Government Efficiency’s plan to cut federal spending could impact contractor profitability.
**Why Separation Makes Sense**
Irenic’s proposal to split KBR’s business units is based on the belief that companies with distinct operations should be separated to attract the right shareholders, align management focus, and reduce overhead costs. By separating the two segments, KBR could potentially increase shareholder value by up to 50% through re-rating the Sustainable Technology Solutions business and cost savings from eliminating corporate expenses.
**Support for Separation**
Irenic is not alone in its call for a separation of KBR’s segments. Many shareholders share the view that keeping the two businesses together is not ideal. With the Sustainable Technology Solutions segment showing significant growth and profitability, the time may be right for KBR to consider a strategic review and potential separation. If no satisfactory announcement is made by the nomination deadline on February 14, 2025, Irenic may resort to a proxy fight to push for change.
**Expert Opinion**
Ken Squire, a renowned expert in shareholder activism, believes that Irenic’s approach of working behind the scenes and using persuasion with management could lead to a positive outcome for KBR and its shareholders. With a potential strategic acquirer like Honeywell in the picture, the pressure for KBR to consider separating its business units is mounting.
Irenic’s activism underscores the importance of shareholder engagement and the potential for value creation through strategic initiatives. As KBR navigates the path ahead, the decision to heed Irenic’s call for separation could shape the company’s future and unlock hidden value for investors.
