Offshore Drilling Combination as Noble and Maersk Drilling Plan Merger
Reflecting the continued struggling nature of the offshore drilling industry and the need for consolidation to reflect the future business prospects, U.S.-based Noble Corporation and Denmark-based Maersk Drilling announced plans for a $3.4 billion combination structured as a merger of equals. The companies are promoting the combination as the opportunity to create a leading company with the scale, capabilities, and resources to address the changing market. News of the transaction however received a mixed response from investors.
Maersk Drilling was created in 2016 through a demerger from a restructuring A.P. Moller – Maersk. At the time, they said the objective for the company was to participate in the required consolidation of a distressed drilling industry. Maersk Drilling currently has a fleet of 19 offshore drilling rigs and specializes in harsh environment and deepwater operations. Noble Drilling, which traces its origins to 1921, currently has a fleet of 20 offshore drilling units, including 12 drillships and semisubmersibles as well as eight jackups.
The two companies have agreed to merge into a new holding company to be known as Noble Corporation in a primarily all-stock transaction. Robert Eifler, the current president and CEO of Noble would be the CEO of the combined company headquartered in Houston, Texas. Current shareholders of Maersk Drilling would receive approximately 1.6 shares in the new company for each share they currently own or have the option of receiving up to $1,000 in cash for a total cash component of up to $50 million. Depending on the final exchanges, the deal is designed so that Noble and Maersk shareholders would each own half of the new company.
“This combination carries strong industry logic,” said Claus Hemmingsen, Maersk Drilling’s Chairman of the Board. “With the combination, we are creating a differentiated provider of offshore drilling services, which will be able to enhance the customer experience through increased scale, global reach, and industry-leading innovation. The combination will create value for all shareholders and will offer investors a unique opportunity to benefit from the market recovery, a robust financial position, and strong free cash flow potential, all paving the way for the potential return of capital to shareholders.”
Citing the rationale for the combination the companies said they expect to generate potential cost synergies of $125 million per year with the full potential to be realized within two years. They cited the diverse revenue mix, contract backlog, solid balance sheet, and strong free cash flow after the combination.
While the markets agreed with the need for industry consolidation, the terms of the proposed transaction quickly came under scrutiny. Noble’s share price was down today nearly eight percent on the New York Stock Exchange. In addition, Standard Drill based in Cyprus, which reports a one percent holding in Maersk, immediately issued a statement questioning the valuation of assets and if it was truly structured as a merger of equals.
"Standard Drilling fully supports industry consolidation in the offshore drilling market. However, we, and other shareholders that have contacted us, are concerned about the proposed exchange ratio and will consider to vote against the transaction" wrote Martin Nes, Chairman of the Board of Directors of Standard Drilling in a letter to the board of Noble Corporation.
Completion of the combination requires approval by 80 percent of the shareholder of Maersk Drilling as well as other regulatory approval and customary conditions. In announcing the agreement, Noble said holders representing 53 percent of its shares, and Maersk said 54 percent of its shares had already expressed their support for the transaction.