Hedge funds grab big stakes in struggling Babcock & Wilcox

 In July 2018

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Babcock & Wilcox Enterprises employs about 100 people at its office in Charlotte’s Ballantyne area.

Until recently, 151-year-old Babcock & Wilcox Enterprises had largely remained under-the-radar since moving its headquarters to the Queen City in 2010. That’s the year it spun out of Virginia-based engineering firm McDermott International and became a separate, publicly traded company. But another split in 2015 — the current B&W comprises the power-generation business of its former parent company — has led to a rocky period for the company, which provides energy and environmental technology and services.

In June, B&W said it plans to sell off two subsidiaries — industrial manufacturers MEGTEC and Universal — for about $130 million to German engineering firm Dürr AG. The announcement came less than two weeks after Steel Partners Holdings, a New York-based hedge fund that owns 17.8% of the company, offered for the second time to buy B&W, which is divided into three business segments: power, renewable and industrial. That deal would give shareholders $3 to $3.50 per share in cash; a December offer by Steel Partners was rejected by B&W. Shares were trading between $2.40 and $2.50 in mid-June.

Formed by investor Warren Lichtenstein in 1990 when he was 24, Steel Partners owns interests in more than a dozen companies, mostly with relatively small market values. Its investments span a range of businesses including banking, industrial products and energy services.

B&W started restructuring its traditional power business in mid-2016 as U.S. demand for coal generation slumped. In February 2017, the company surprised investors by disclosing a $140 million loss due to setbacks in construction projects in its renewables segment, which is based in Denmark. That announcement led to a class-action lawsuit by shareholders.

Then in February, the company replaced CEO Jim Ferland with Leslie Kass, who previously led the company’s industrial segment. Jenny Apker, chief financial officer, also resigned June 1 due to health reasons.

In early May, B&W said it had raised $248.5 million in a rights offering, allowing it to repay a $196 million loan on which it had defaulted. The transaction enabled two hedge funds to increase their stakes in the company: Steel Partners and Florida-based Vintage Capital Management, which now owns 14.9%.

The company’s first-quarter results, announced May 8, showed revenue of $311.4 million, down 20% from a year earlier. In mid-June, B&W had a market cap of about $407 million.

B&W started making steam boilers in Rhode Island in 1867; they powered New York City’s first subway. Today, the company employs about 4,000 people, including about 100 in Charlotte, a company spokesman says.

Proceeds from selling the two business units will help reduce debt and give B&W more flexibility, according to a company statement. The company declined to comment on the purchase offer from Steel Partners.

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