In what’s the biggest M&A deal in oil since the 2014 price crash, Transocean has agreed to buy Norwegian sector player Songa Offshore for U$1.1 billion, to be paid in stocks and convertible debt.
The target company’s enterprise value including debt is US$3.4 billion, and the acquisition should generate cost and operational synergies of about US$40 million annually, the Swiss-based buyer said in a statement.
Transocean added that the acquisition will strengthen its position in harsh environment and ultra-deepwater drilling. The order backlog will swell by US$4.1 billion to US$14.3 billion after the acquisition.
Songa’s shares jumped on the news, by as much as 35 percent, with some 77 percent of the company’s shareholders already backing the deal. It needs the support of at least 90 percent to go through as Transocean’s offer values the stock at US$5.97 (47.50 crowns) a premium of 39.7 percent over its closing price on Monday.
Transocean stocks, however, fell to a 20-year low on the news of the acquisition, indicating shareholders are still suspicious of such major deals, especially if they involve the assumption of over US$1billion in debt: Songa’s debts amount to about half of its equity value. Also, one analyst said, the debt that Transocean will take out to fund the deal will affect its credit metrics.
One analyst told Reuters that the deal indicates the oil and gas services market is close to bottoming out, with potential buyers looking for acquisition targets no longer expecting asset prices to fall much further.
The acquisition is also indicative of Transocean’s new stated focus on deepwater drilling. Earlier this year, Reuters notes, the company divested its shallow water rigs to Norwegian Borr Drilling for US$1.35 billion.
Borr Drilling is one of the newcomers on the offshore drilling stage, taking advantage of major discounts as sector players struggle under debt and low prices. Transocean’s rival Seadrill, for example, is currently restructuring its debt of US$14 billion, forced to sell off assets cheaply.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.