Investing.com -- Shares of KBR, Inc. (NYSE:KBR) climbed 5% today after the Wall Street Journal reported that that activist investor Irenic Capital Management has acquired a stake in the company and is urging it to separate its private sector segment. This move is anticipated to potentially increase shareholder value by up to 50%.
Houston-based KBR, with a market valuation surpassing $7 billion, has seen Irenic accumulate more than a 1% stake. Irenic's strategy involves advocating for the spin-off or sale of KBR's sustainable technology solutions segment, which, despite contributing less than a quarter of KBR's revenue, has produced a significant portion of the company's operating profit this year.
The activist investor is set to propose that the division of the company into two distinct segments, each with unique growth and margin profiles, would be beneficial. The sustainable technology solutions segment offers services in areas such as chemical processing and energy efficiency to both government and private sector clients. On the other hand, KBR's other major unit specializes in providing a variety of engineering and other services to government agencies, including the Defense Department and NASA.
Irenic's push comes amidst investor concerns over the potential impact of federal spending cuts on government contractors. Such concerns have been fueled by speculation surrounding the Department of Government Efficiency (DOGE), an advisory commission to President-elect Donald Trump, which includes Elon Musk and Vivek Ramaswamy. The commission has vowed 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 suffered, dropping over 17%, a trend seen across the sector of government contractors. Despite this, Irenic believes that KBR's management has been successful in shifting the company's focus towards growth areas, and that the market is undervaluing the sustainable solutions business due to worries about the government-focused unit.
Irenic, founded in 2021 and led by Andy Dodge and Adam Katz, has a history of active investment, including securing board seats at Barnes and Theravance Biopharma (NASDAQ:TBPH) after advocating for changes. Their involvement has previously led to significant corporate actions, such as Barnes agreeing to be taken private by Apollo Global Management (NYSE:APO).
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