KLX Inc. (KLXI) & KLX Energy Services Holdings Inc. (KLXE) Spin-Off Report
On September 14th, 2018, KLX Inc. (Nasdaq:KLXI) is expected to complete the spin-off of its Energy Services Group business into a separate public company, KLX Energy Services Holdings Inc. (KLXE). The remaining Aerospace Solutions Group (ASG) business will be sold for ~$4.25 billion to The Boeing Company. The spin-off is anticipated to be taxable and was announced on May 1st, 2018. The spin-off makes sense given the lack of synergy between the two businesses. Also, the energy services segment is more cyclical and volatile (given exposure to the oil & gas markets) than the aerospace business.
KLXE will be a pure-play oilfield services company with strong presence across all major US onshore basins. Anticipated higher commodity prices and increase in overall capital spending by E& P players is likely to boost demand for completion, intervention, and other services. KLXE's superior profit margins, differentiated services and strong market presence positions it to benefit from the ongoing oilfield services market recovery. KLXE is guiding for topline growth of ~55% and ~300% growth in adjusted EBITDA in FY18.
Post-merger (expected to be completed by 4Q18), KLXI will become part of The Boeing Company and will cease to trade on the Nasdaq. The transaction will accelerate Boeing's push into the services business, which is projected to be a $2.6 trillion market opportunity over the next decade.
In our view, KLXE is undervalued. Post spin and merger, KLXI will cease to trade on the Nasdaq so we do not have a rating on it.
KLX is a distributor and service provider of aerospace fasteners and consumables. The company also provides a range of aerospace hardware and consumables and inventory management services. The company conducts its business through two operating segments: Aerospace Solutions Group, which provides unparalleled service to commercial airline, business jet and defense original equipment manufacturers and their subcontractors, airlines, maintenance, repair and overhaul operators, fixed base operators and domestic military depots; and Energy Services Group, which serves energy industry customers who focus on developing and producing oil and gas onshore in North America.
KLX Energy Services is a holding company. Through its subsidiaries, the company is a provider of completion, intervention and production services and products to the major onshore oil and gas producing regions of the United States. The company offers a range of differentiated, complementary technical services and related tools and equipment in challenging environments that provide "mission critical" solutions for the company's customers throughout the life cycle of the well.
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