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Transocean and Ocean Rig Have Entered Into a Definitive Merger Agreement, Including Ocean Rig’s Net Debt and the Combined Fleet Will Be 57 Offshore Units
The consideration for the transaction consists of 1.6128 newly issued shares of Transocean plus US$ 12.75 in cash for each Ocean Rig common share, for an implied total value of US$ 32.28 per Ocean Rig share, based on the closing price on August 31, 2018. Transocean said on Tuesday that this represents a 20.4% premium to the volume-weighted average price of Ocean Rig’s shares over the last 10 days. The transaction was unanimously approved by the board of directors of each company.
Transocean also stated that it plans to finance the cash portion of the transaction through a combination of cash on hand and fully committed financing provided by Citi. The merger is not subject to any financing condition.
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Upon the completion of the merger, Transocean and Ocean Rig shareholders will hold approximately 79% and approximately 21%, respectively, of the combined company.
Ocean Rig Fleet
The Ocean Rig fleet consists of nine high-specification ultra-deepwater drillships and two harsh environment semi-submersibles, Eirik Raude and Leiv Eiriksson.
In addition, its fleet includes two ultra-deepwater high-specification drillships currently under construction at Samsung Heavy Industries, with favorable financing conditions for shipyards. These two new builds are expected to be delivered in the third quarter of 2019 and the third quarter of 2020, respectively.
“The proposed acquisition of Ocean Rig provides us with a unique opportunity to continue enhancing our fleet of ultra-deepwater floaters and high-specification units without compromising our liquidity or overall balance sheet flexibility,” said Transocean President and CEO Jeremy Thigpen.
“The combination of stable and constructive oil prices over the last few quarters, simplified offshore project costs, and non-negotiable replenishment challenges have driven a significant increase in offshore contracting activity. As such, adding Ocean Rig’s premium assets to our market-leading fleet provides us with a greater number of modern and highly efficient drillships favored by our clients and positions us better to capitalize on what we believe is an imminent recovery in the ultra-deepwater market.”
Thigpen continued: “This combination with Ocean Rig further strengthens our relationship with strategic clients while expanding our presence in key markets such as Brazil, West Africa, and Norway. It also allows us to reduce our cost per active rig, as we believe we can integrate Ocean Rig’s operations into our existing structure with limited incremental shore expenses. Furthermore, we are confident that we can achieve significant synergies through our OEM contracts, our overall maintenance approach, and our insurance coverage across the fleet, among other opportunities.”
Combined Fleet of 57 Floaters
Thigpen concluded: “Including the five platforms under construction, and considering the two additional rigs we have recently decided to recycle, Transocean’s pro forma fleet will consist of 57 floaters, including many of the most technically capable ultra-deepwater floaters and harsh environment semi-submersibles in the industry.
“With this unmatched fleet, the largest and most profitable backlog in the offshore drilling industry, totaling US$ 12.5 billion, and approximately US$ 3.7 billion in liquidity, we are well-equipped for the market recovery.”
Pankaj Khanna, President and CEO of Ocean Rig UDW Inc., commented: “This strategic combination of Ocean Rig and Transocean creates a world-class fleet perfectly positioned for market recovery, reducing the fragmentation currently existing in offshore drilling. By adding our high-specification floaters to Transocean’s industry-leading fleet, the combined company will have the largest and most technically capable ultra-deepwater and harsh environment floater fleet in the offshore industry. Upon consummation, this transaction will be of significant benefit to the shareholders of both companies.”
No changes to the board of directors, executive management team, or corporate structure of Transocean are anticipated as a result of the acquisition. The company will remain headquartered in Steinhausen, Switzerland, with significant operational presence in Houston, Texas, Aberdeen, Scotland, and Stavanger, Norway.
The transaction, which is expected to close in the first quarter of 2019, is subject to approval by the shareholders of Transocean and Ocean Rig and the satisfaction of customary closing conditions, including applicable regulatory approvals.
Two Rigs Will Be Retired
Additionally, in accordance with the company’s strategy to recycle less competitive equipment, Transocean will retire two of its floaters, the ultra-deepwater drillship C.R. Luigs and the mid-water floater Songa Delta. The platforms will be classified as held for sale and will be recycled in an environmentally responsible manner. Both floaters are currently stacked.
Transocean anticipates a reclassification of the combined fleet, which may result in the recycling of additional rigs.
It is worth noting that Transocean completed the acquisition of another offshore driller, Songa Offshore, earlier this year in a US$ 3.4 billion deal.
When it comes to Ocean Rig, the driller completed its debt restructuring in September 2017. The company’s restructuring schemes provided for substantial deleveraging of the scheme companies – itself and its subsidiaries – through an exchange of approximately US$ 3.7 billion in principal debt (plus interest) for new shares of the company, approximately US$ 288 million in cash, and US$ 450 million of new secured debt.
Following the restructuring, Ocean Rig made significant changes to its management team in January, including the change of the CEO, CFO, and COO.
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