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Transocean (RIG) Inks $3.4 Billion Deal to Acquire Songa
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Shares of the offshore drilling giant Transocean Ltd. (RIG - Free Report) hit a record low of $7.55 in the mid-day trading on Aug 15, to eventually close at $7.91, reflecting a decline of over 5.7%. The decline came after the company announced plans to acquire Norway-based drilling contractor Songa Offshore for $3.4 billion, which comes as the most expensive deal in the offshore drilling industry since the three-year oil slump period. The decline reflects the investors’ apprehension as the deal is likely to worsen the near-term credit metrics of Transocean by increasing debt by more than 35% and reduce cash by 20%. On the other hand, shares of Songa jumped more than 30% reflecting investors’ confidence in the strategic merger.
This deal follows the $839 million merger of Ensco plc and Atwood Oceanics, Inc. . Pick up in the merger and acquisition activities have been raising optimism within the sector which had been affected by the oil price slump.
Deal Highlights
The total value of the deal is estimated at $3.4 billion and will be paid through a combination of debt, shares and cash. Transocean will assume $1.7 billion Songa’s debt along with issuing $540 million in common stock. Transocean will also issue $660 million in convertible bonds and will fund the remaining $480 million in cash.
Though the deal will be adversely affecting the near-term financials of Transocean, it is expected to boost its long-term opportunities in the Norwegian market and enhance the company’s position in the offshore drilling industry and help the company penetrate deep-and harsh-water markets. The company expects annual cost and operational synergies of around $40 million from the deal.
Transocean has been streamlining its portfolio by focusing on deepwater floaters exclusively. In sync with this objective, the company signed an agreement to sell 15 jack-up drilling rigs to the Norwegian offshore drilling contractor Borr Drilling in March. The acquisition of Songa is another strategic move by Transocean. Songa’s complementary assets and strong fleet quality will strengthen Transocean’s portfolio. The combined company will have a fleet of 51 rigs comprising ultra-deepwater drillships, versatile deep- and mid-water semisubmersibles and shallow-water jackups, along with a diverse customer base. An expanded fleet, serving a larger customer base across a wide geographic footprint, is expected to open up future revenue growth opportunities.
The deal is also expected to boost the backlog of the combined entity by over 40%. The acquisition of Songa – which currently has a backlog worth $4.1 billion related to the long-term contracts with noted energy players including Statoil ASA – is expected to drive revenues and cash inflows of Transocean in the long term. The deal is likely to enhance the sales from Transocean’s backlog by an impressive 35% in the next year and more 50% in 2019. This in turn is expected to boost shareholders value.
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Transocean (RIG) Inks $3.4 Billion Deal to Acquire Songa
Shares of the offshore drilling giant Transocean Ltd. (RIG - Free Report) hit a record low of $7.55 in the mid-day trading on Aug 15, to eventually close at $7.91, reflecting a decline of over 5.7%. The decline came after the company announced plans to acquire Norway-based drilling contractor Songa Offshore for $3.4 billion, which comes as the most expensive deal in the offshore drilling industry since the three-year oil slump period. The decline reflects the investors’ apprehension as the deal is likely to worsen the near-term credit metrics of Transocean by increasing debt by more than 35% and reduce cash by 20%. On the other hand, shares of Songa jumped more than 30% reflecting investors’ confidence in the strategic merger.
This deal follows the $839 million merger of Ensco plc and Atwood Oceanics, Inc. . Pick up in the merger and acquisition activities have been raising optimism within the sector which had been affected by the oil price slump.
Deal Highlights
The total value of the deal is estimated at $3.4 billion and will be paid through a combination of debt, shares and cash. Transocean will assume $1.7 billion Songa’s debt along with issuing $540 million in common stock. Transocean will also issue $660 million in convertible bonds and will fund the remaining $480 million in cash.
Though the deal will be adversely affecting the near-term financials of Transocean, it is expected to boost its long-term opportunities in the Norwegian market and enhance the company’s position in the offshore drilling industry and help the company penetrate deep-and harsh-water markets. The company expects annual cost and operational synergies of around $40 million from the deal.
Transocean has been streamlining its portfolio by focusing on deepwater floaters exclusively. In sync with this objective, the company signed an agreement to sell 15 jack-up drilling rigs to the Norwegian offshore drilling contractor Borr Drilling in March. The acquisition of Songa is another strategic move by Transocean. Songa’s complementary assets and strong fleet quality will strengthen Transocean’s portfolio. The combined company will have a fleet of 51 rigs comprising ultra-deepwater drillships, versatile deep- and mid-water semisubmersibles and shallow-water jackups, along with a diverse customer base. An expanded fleet, serving a larger customer base across a wide geographic footprint, is expected to open up future revenue growth opportunities.
The deal is also expected to boost the backlog of the combined entity by over 40%. The acquisition of Songa – which currently has a backlog worth $4.1 billion related to the long-term contracts with noted energy players including Statoil ASA – is expected to drive revenues and cash inflows of Transocean in the long term. The deal is likely to enhance the sales from Transocean’s backlog by an impressive 35% in the next year and more 50% in 2019. This in turn is expected to boost shareholders value.
Zacks Rank
Transocean is an international provider of offshore contract drilling services for oil and gas wells. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Transocean Ltd. Price
Transocean Ltd. Price | Transocean Ltd. Quote
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