Blue Harbour has been active at Babcock & Wilcox since May 2014 and still owns 9.9% of the legacy company, now trading at BWX Technologies ($BWXT). Its spinoff, the power generation business, now trades at Babcock & Wilcox Enterprises ($BW).
$BW is the power generation business and dependent on the coal industry, where it supplies parts to coal-fired plants, and $BWXT sells nuclear reactors and fuel for the U.S. Navy submarines and aircraft carriers. $BWXT will still have the mPower unit, which Babcock sunk a lot of money into, but it looks as if it won’t bear any fruit.
As with most splits, the move leads the two companies to an increased focus on their respective industries. $BW will focus on cutting costs and look to grow overseas with new energy generation technology to mitigate the risks related to U.S. coal. Still, an interesting play on coal if you believe that the demand won’t go to zero over the interim – above half of its revenues are coal-related. What’s more is that $BW is the well-capitalized company, with a cash balance, minimal debt and open revolver.
$BWXT remains the steady player, being tied to the U.S. government. It has the high margins and steady growth, along with barriers to entry, that could make it an impressive dividend and buyback story.