Transocean Ltd. and Ocean Rig UDW Inc. have announced that they have entered into a definitive merger agreement under which Transocean will acquire Ocean Rig in a cash and stock transaction valued at approximately USD 2.7 billion, inclusive of Ocean Rig’s net debt.
The transaction consideration is comprised of 1.6128 newly issued shares of Transocean plus USD 12.75 in cash for each share of Ocean Rig’s common stock, for a total implied value of USD 32.28 per Ocean Rig share, based on the closing price on August 31, 2018. This represents a 20.4% premium to Ocean Rig’s 10-day volume weighted average share price. The transaction has been unanimously approved by the board of directors of each company.
Transocean intends to fund the cash portion of the transaction consideration through a combination of cash on hand and fully committed financing provided by Citi. The merger is not subject to any financing condition.
Upon completion of the merger, Transocean’s and Ocean Rig’s shareholders will own approximately 79% and approximately 21%, respectively, of the combined company.
Ocean Rig’s fleet is comprised of nine high-specification ultra-deepwater drillships and two harsh environment semisubmersibles. Additionally, its fleet includes two high-specification ultra-deepwater drillships currently under construction at Samsung Heavy Industries with favourable shipyard financing terms. These two newbuilds 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 and harsh environment floaters, without compromising our liquidity or overall balance sheet flexibility,” says Transocean’s President and Chief Executive Officer, Jeremy Thigpen. “The combination of constructive and stable oil prices over the last several quarters, streamlined offshore project costs, and undeniable reserve replacement challenges has driven a material increase in offshore contracting activity. As such, adding Ocean Rig’s premium assets to our industry-leading fleet provides us with an increased number of the modern and highly efficient ultra-deepwater drillships preferred by our customers, and better positions us to capitalise on what, we believe, is an imminent recovery in the ultra-deepwater market.”
Thigpen continues, “This combination with Ocean Rig further strengthens our relationships with strategic customers, while expanding our presence in the key markets of Brazil, West Africa and Norway. It also enables us to reduce our cost per active rig, as we believe that we can efficiently merge the Ocean Rig operations into our existing structure with limited incremental shore-based expense. Further, we are confident that we can realise meaningful synergies through our OEM agreements, our overall approach to maintenance and our fleet-wide insurance coverage, among other opportunities.”
Thigpen concludes, “Including the five rigs under construction, and considering the two additional rigs that we have recently decided to recycle, Transocean’s pro forma fleet will be comprised of 57 floaters, including many of the most technically capable ultra-deepwater floaters, and harsh environment semisubmersibles in the industry. With this unparalleled fleet, the offshore drilling industry’s largest and most profitable backlog totalling USD 12.5 billion, and approximately USD 3.7 billion in liquidity, we are well-equipped for the market recovery.”
Pankaj Khanna, President and Chief Executive Officer of Ocean Rig UDW Inc. comments, “This strategic combination of Ocean Rig and Transocean creates a world-class fleet perfectly positioned for the market recovery while reducing fragmentation that currently exists in offshore drilling. By adding our high-specification floaters to Transocean’s industry-leading fleet, the combined company will have the offshore industry’s largest and most technically capable fleet of ultra-deepwater and harsh environment floaters. Upon consummation, this transaction will be of significant benefit to the stakeholders of both companies.”
No changes to Transocean’s board of directors, executive management team, or corporate structure are anticipated as a result of the acquisition. The company will remain headquartered in Steinhausen, Switzerland, with significant operating presence in Houston, Texas, Aberdeen, Scotland and Stavanger, Norway.
The transaction, which is expected to be completed during the first quarter of 2019, is subject to the approval of both Transocean and Ocean Rig shareholders and the satisfaction of customary closing conditions, including applicable regulatory approvals. The merger is not subject to any financing condition.