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London drilling company Ensco PLC (ESV) is buying rival Pride International Inc. (PDE) rather than ordering its own new drilling rigs in order to gain access to the Texas company's employees and customer base, Ensco Chief Executive Dan Rabun said.
"It's easy to order rigs; it's little tougher to contract them and operate them," Rabun said Monday during a conference call discuss Ensco's planned $7.3 billion acquisition of Pride. "This is clearly about access to assets, access to people and access to markets and customers, which just ordering and new-building does not necessarily give you."
In the deal announced Monday, Pride International shareholders will receive a combination of new Ensco shares and cash that amounts to $41.60 for each Pride share they own--a 21% premium over the stock's Friday closing price.
Pride International shares surged 15.88% to $39.85 in Monday trading. Meanwhile, Ensco's stock fell 4.45% to $51.99.
The companies expect the merger to close early in the second quarter.
The resulting company will become the world's second-largest offshore-drilling contractor with a fleet of 74 rigs, second to Transocean Ltd. (RIG, RIGN.VX) and its 138 rigs. The new enterprise will have an enterprise value of $16 billion and a contract backlog of about $10 billion.
The merger also will create what will be the second-youngest and largest deep-water fleet in the world, said Pride Chief Executive Louis Raspino. The new company will boast 21 deep-water rigs with an average age of seven years.
Pride has been aggressive in adding new ultra-deep-water drill ships in the last five years, having ordered five, with an option to build a sixth. Those drill ships command day rates that often exceed $500,000 and are capable of drilling in up to 12,000 feet of water--more than twice the depth at which Transocean's Deepwater Horizon was drilling when it exploded in the Gulf of Mexico and unleashed the largest marine oil spill in U.S. history.
Rabun said Ensco has "no intention" of selling assets to reduce debt related to the acquisition and that the new company will continue to look to update its fleet. "We will clearly have the capacity to reinvest in the business," he said.
The executives said the most compelling reason to combine their companies was that they seldom compete for business in offshore basins, with each company having strong positions where the other is weak or absent.
"The strategic fit in terms of geographic reach is remarkable with minimal overlap," Rabun said.
Pride will bring to Ensco its "extensive operating experience" in Brazil and West Africa, two of the fastest growing deep-water markets. Meanwhile, Ensco will now be able to market Pride's ultra-deep-water drill ships in markets where Ensco holds a significant position, including Europe, Mexico and the Pacific, Rabun said.
-By Ryan Dezember, Dow Jones Newswires; 713-560-6670; Ryan.Dezember@dowjones.com