Subsea 7 Pitches McDermott Takeover (Adds Rystad Analysis)
Subsea 7 announced April 23 it has made a takeover offer for US rival McDermott International. The offer, already rejected by McDermott's board, is worth about $2bn, a source close to the deal told NGW.
Oslo-listed, London-headquartered Subsea 7 said it has proposed to acquire McDermott common stock for $7/share, payable entirely in cash, or up to 50% in Subsea 7 stock and 50% cash. It said the offer represents a premium of 16% to the latest April 20 McDermott closing share price, adding that its proposal is subject to the termination of McDermott’s pending transaction with CB&I.
McDermott and CB&I announced December 18 they had agreed on a merger valued at $6bn according to which McDermott shareholders would own 53% and CB&I shareholders the other 47%. Stock values though have declined since December, and their combined market capitalisation at the April 20 close was about $3.23bn at the April 20 close (McDermott $1.73bn, CB&I $1.5bn).
Luxembourg-domiciled Subsea 7 made its offer in a letter to McDermott’s board on April 17. Subsea7 disclosed April 23 that its offer was rejected as hostile by McDermott’s board on April 20. Nonetheless Subsea7 CEO Jean Cahuzac said: “Our proposal provides equity upside in a company with a robust financial position.”
Update: Consultancy Rystad Energy has commented on the Subsea 7 move, saying it would create a powerful new entity in the global market for subsea umbilicals, risers and flowlines (SURF).
"McDermott is the only acquisition target that could make Subsea 7 the market leader in the SURF sector,” said Rystad's vice president of oilfield service research Audun Martinsen: "In the SURF market, a merged Subsea7-McDermott would boast a combined market share of 24%, with TechnipFMC following at 20% and Saipem at 15%. In addition to acquiring McDermott’s SURF and engineering business, Subsea 7 would also get the US contractor’s Fabrication & Operations product line, specialising in topside and jacket structures, which is currently busy with the Tyra Redevelopment Project in Denmark."
"McDermott has been very successful in the Middle East, securing major frame agreements with Saudi Aramco, and in Asia, winning key contracts with Reliance for the KG-D6 project in India and with Inpex at the Ichthys LNG project in Australia. The Middle East and Asia regions represent more than 90% of McDermott’s upstream revenues. Subsea 7 has had more focus and success in the North Sea, Africa and the Americas, and these regions represent about 85% of its upstream revenues," said Martinsen, adding that the Middle East represents less than 5% of Subsea 7's business, but would grow to 15% for the combined entity.
“Oil prices have climbed considerably since December and, according to our analysis of oil market fundamentals, the offshore service market will see a clear comeback as the world will need more offshore production. Hence we think McDermott’s board of directors now faces a bit of dilemma on how to respond to the takeover bid by Subsea 7,” he concludes.