Transocean Seals Mega Deal
Swiss-based oil company, Transocean, has signed a major acquisition deal with Norwegian industry player Songa Offshore. The transaction will cost 1.1 billion US dollar and shall be paid in exchangeable debt and stocks.
Songa’s overall enterprise value including company debt is around US$3.4 billion. However, according to Transocean once the transaction is complete it would generate about US$40 million per year.
The Swiss firm has offered 40-percent premium in the deal and so far 77pct of Songa Offshore shareholders have accepted it, once everything is complete they’ll become the single largest shareholder at Transocean.
Additionally, since Perestroika is one of Songa Offshore’s largest investors, they would get a stake of 12 pct in Transocean once the acquisition is done. Perestroika’s founder and chairman of Songa, Frederik Wilhelm Mohn, will also be nominated for an executive seat on the parent company’s board.
This purchase forms part of a series of high level transactions currently reinventing the oil industry. It also marks the start of a recovery process for rigs that have been going through harsh-environment. Previously in May, another company Ensco Plc also bought a smaller drilling competitor Atwood Oceanics in an all-stock transaction valued at US $839 million.
Following Transocean’s purchase, Songa shares were valued at 47.50 Norwegian crowns a piece, which is an impressive 39.7 pct premium over the previous closing rate. The buyer further added that this acquisition will reinforce its stake in the ultra-deepwater and harsh environment drilling sector. It will put Transocean at a better position working in places such as the Arctic.
In a statement released by the procuring company’s CEO, Jeremy Thigpen, he said that Songa is a great strategic fit for them, further adding that the deal will increase Transocean’s cash book by $4.1 billion, to stand at an average of $14.3 billion.
They are yet set to complete the transaction, with Songa having a total of 7 midwater partly-submersible rigs that are set to be exchanged by the 4th quarter of 2017. Moreover, 4 out of the 7 Songa rigs are signed on long-term contracts with another company Statoil, making the acquisition particularly attractive.
According to Swedbank oil market analyst, Magnus Olsvik, the deal is a sign that operating in the industry is becoming much tougher than before and it’s only through such transactions that companies can expect to thrive, plus improve on their asset prices.
Earlier in March, Transocean had sold its series of shallow-water drilling rigs to Norwegian firm Borr at an estimated price of $1.35billion, claiming they wanted to focus only on deep and ultra-deepwater oil extraction.
This latest transaction comes as a time when their main deepwater rig rival, Seadrill, is also undergoing a restructuring process of debt and liabilities totaling to about $14 billion, whereas new industry players such as Borr are more interested in acquiring cheap assets.
When asked whether they saw such a transaction coming, the world’s most renowned oil-field services provider, Schlumberger, said that Odfjell Drilling is probably an obvious target for purchase, but there aren’t any good matches so far that can rival the scale of the Transocean and Songa deal. Schlumberger has a 20pct stake in Borr, which is expected to be listed on the Oslo market exchange by end of 2017.
While demand for Songa shares jumped significantly by 35% following this deal, 13% of shareholders are still required to finalize the transaction, since it requires at least 90pct of shareholders’ approval for the offer to go through. So far only 77 pct have agreed as stated earlier.
On the other hand, Transocean stocks fell to an unexpected 20yr low following the acquisition news. This indicates that investors are still suspicious on how successful the deal shall be, especially taking into account the US$1 billion debt that’s yet to be paid by Transocean and its partners.
One analyst commented that the debt Transocean will borrow to finance the deal may impact on its credit metrics for a considerably long period to come. Similarly, Songa’s debts cover around half of its total equity value.
Such transactions show that the oil and gas services sector is on a go slow, with potential buyers seeking for acquisition targets and no longer expecting asset values to drop much further.
Generally, while demand for oil drilling services has been hit by drastic fall in oil rates in recent times, the demand for high-capacity rigs capable of operating in harsh environments has shown positive signs of recovery.