Oil States International Accommodates Jana Partners – Will Spin Off Accommodations Business Next Year

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People often focus on the larger, more macro implications of the recent commodity boom. As a result, it’s very easy to forget about the nitty gritty, day to day lives of the people actually working in far flung locations up in Canada or South Dakota (well, there goes our South Dakota reader). Thousands of people descend on these areas needing places to sleep, eat, shower etc. It’s apparently big business and one that will soon be set free via spinoff as Oil States International (OIS) announced plans to spin off its accommodations business into a standalone company. The transaction represents another victory for activist investor JANA Partners, which owns ~9.8% of the company’s shares and had been pushing for the move. David Einhorn’s Greenlight Capital also has a sizeable stake in the company and presented OIS as a long position earlier this year at the Ira Sohn conference.

So what exactly is an ‘Accommodations Business’? The new company is ‘a leading integrated provider of remote site accommodations services principally for temporary and permanent workforce housing, offering customers a turn-key solution for workforce accommodations, food services, facility management and water and wastewater services.’ So basically what it sounds like – providing accommodations such as homes, bathrooms and other basic services for workers in far off areas. The company is focused on sites in Canada, Australia and US shale plays and expects those regions to continue to drive growth. The segment generated ~$1.1b in revenue and $476m in EBITDA during the 12m period ending June 30th, 2013, with about 2/3 of that coming from Canada. While it is likely that any new finds will be in remote areas requiring these services, there is no guarantee new sizeable sites will be discovered. The good news is that these tend to be long term commitments and the company notes that revenue visibility is strong.

The company will be spun out as a C Corp, but the long term plan (and activists’ idea) is to convert the business into a REIT. There is no guarantee that will be successful though and according to the company, the earliest possible conversion date would be in Q1 2015. I’m not sure it will be an issue in this case given the business, but it’s worth noting that the IRS is currently reviewing its standards for REIT qualifications.

After recently selling off its tubular services segment, the parent company will retain its other operating segments – offshore products and well site services – and ‘focus on delivering technology and solutions to the growing deepwater and shale play markets.’  For additional information on the spin and OIS’ businesses, check out this investor presentation.

The stock has appreciated quite a bit since Jana announced its stake earlier this year and investors were quite happy with the spinoff plans. For what it’s worth, the article linked to above says Mr. Einhorn estimated SOTP valuation for the company with a REIT business at ~$155 and regular SOTP at ~$118. The spin is expected to be completed during or before summer 2014 so there is still plenty of time. A Form 10 is expected to be filed with the SEC this quarter, but this Forbes piece notes that bondholders could present an obstacle to the spinoff due to certain covenants on OIS’ outstanding debt.

Disclosure: Author holds no position in any stock mentioned.

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