Halliburton Co. said yesterday that it may sell its Kellogg Brown & Root subsidiary, the largest government contractor in Iraq. Even though revenue soared from the unit, profit lagged and the dollars brought controversy over whether the company once run by Dick Cheney overcharged the government and mishandled some of the services it provides.
In remarks to industry analysts at a conference yesterday, Halliburton chief executive David J. Lesar suggested that the engineering and construction subsidiary was dragging down the company's stock price. The company announced that it was reorganizing the unit in hopes of improving profitability.
The restructuring follows months of questions by auditors and lawmakers about whether KBR overcharged the government for troop support services including housing, food and fuel.
The Army is considering withholding 15 percent from future payments for services after auditors said the company has not properly justified expense reports. The Justice Department is investigating allegations of profiteering in the Balkans and the company's activities in Nigeria and Iran.
Halliburton spokeswoman Wendy Hall said the restructuring and possible divestment of KBR has nothing to do with the recent controversies.
Halliburton said KBR, the government's largest logistical and oil services contractor in Iraq and Kuwait, would merge five product lines into two: the energy and chemicals division and the government and infrastructure division.
Revenue for KBR from government contracts has surged in the past few years, driven by increases in work related to troop support, but profit has not kept pace. Halliburton said it wanted to make KBR more efficient.
"This is a new KBR. We will be a streamlined, efficient and more profitable organization," Andrew R. Lane, KBR's president and chief executive, said in a written statement. "Improved profitability is the cornerstone of the new organization."
In a speech to industry analysts in Houston, Lesar made clear the consequences if KBR does not succeed and boost the stock price relative to industry rivals: Halliburton will sell KBR, spin it off or put it up for an initial public stock offer.
Much depends on how KBR performs after it and another Halliburton subsidiary complete a $4.2 billion settlement of asbestos-related litigation. KBR employs about 83,000 people in 43 countries. One investment analyst told Bloomberg News that KBR would be worth about $3.5 billion as a separate company.