samedi 11 novembre 2006

The legacy of "putting the adults in charge"

Remember when the Supreme Court appointed George W. Bush as president, and you said, "Well, it won't be so bad, the guys around him will keep him from screwing up too badly"? You and I weren't the only ones. A New Jersey man named Ron Breitweiser, a staunch Bush supporter who died in the World Trade Center attacks, believed that too, as his widow Kristen recounts in her recent book.

You believed that having old hands like Cheney and Rummy around would keep him from the disaster we sensed his presidency would be, because to believe otherwise was unthinkable.

They said they'd run the company like a business, and so they have. There's just one problem. The business they ran it like was the Halliburton subsidiary Kellogg, Brown, and Root:

Can a company under investigation by the Justice Department raise hundreds of millions of dollars in an initial public offering? What if there are two separate investigations? Or three?

Next week, we will get an answer to an even more daunting question. Can KBR Inc., as Kellogg Brown & Root is now known, raise half a billion dollars from investors even though four Justice Department investigations are pending, as well as an inquiry by the British government?

KBR is now a subsidiary of Halliburton, the oil services giant. In recent years, it has lost money on most of its operations, but has made that up with profit from its work for the American and British governments in the Middle East, mostly in Iraq.

One of the criminal investigations stems from KBR’s Iraq contracts, with a grand jury looking into issues of fraud in purchasing supplies for the government. Another inquiry is investigating possible overcharges for work that KBR did for the United States in the Balkans from 1996 to 2000.

If this deal were being sold by a real estate agent, the ad might read “motivated seller.” Rarely has any major company been clearer about its desire to be free of a subsidiary. Whether or not the offering finds buyers, Halliburton plans to distribute its remaining shares in KBR to Halliburton shareholders.

Why the desire to get out? David Lesar, Halliburton’s chief executive, called KBR a drag on the parent company’s profits. But reading the prospectus raises at least two other possible explanations. One is liability concerns. The other is more psychological. The legal problems that could be most important serve as a reminder of a deal gone awry.

That deal was Halliburton’s $7.7 billion 1998 acquisition of Dresser Industries. Engineered by Dick Cheney, then Halliburton’s chief executive, the merger accomplished a major strategic goal, making Halliburton the world’s largest provider of oil field services.

But Halliburton’s due diligence failed to either uncover or appreciate the importance of some significant issues. There were asbestos liabilities, which ended up forcing some Halliburton units into bankruptcy and cost the parent company billions.

Halliburton also failed to notice what it now says may have been illegal behavior overseas at Kellogg, a Dresser subsidiary that is now part of KBR. It says that there appears to have been bribery of Nigerian officials for years in connection with contracts there and that similar behavior may have occurred elsewhere. The Justice Department is investigating possible violations of the foreign corrupt practices act, and Britain has a similar inquiry.

While looking into those charges itself, Halliburton found evidence that Kellogg “may have engaged in coordinated bidding with one or more competitors on certain foreign construction projects, and that such coordination possibly began as early as the mid-1980’s,” KBR says in its prospectus. That is the subject of the final federal investigation, and of some foreign inquiries as well.


Would YOU buy a used company from Dick Cheney?

Aucun commentaire:

Enregistrer un commentaire