RIG Transocean Ltd

By Costas Paris and Kimberly Chin 

Transocean Ltd. has agreed to buy fellow offshore-drilling contractor Ocean Rig UDW Inc., in a cash-and-stock transaction valued at about $2.7 billion aimed at strengthening the company's drillship fleet ahead of an expected market recovery.

Switzerland-based Transocean, among the world's five biggest offshore operators with revenue of $7.4 billion last year, will give Ocean Rig shareholders 1.6128 newly issued shares in the combined business plus $12.75 in cash per share of Ocean Rig's common stock. This would value Ocean Rig's shares at $32.28 apiece, representing a 20.4% premium over the 10-day volume-weighted average share price of the drilling contractor as of Aug. 31.

Transocean's shareholders would own about 79% of the combined company, while Ocean Rig's will own about 21%. No changes to the board of directors, executive management or corporate structure are anticipated.

Transocean plans to finance the deal through a combination of cash and fully committed financing from Citigroup Inc.

Offshore drilling has been one of the hardest-hit sectors in the shipping industry's downcycle over the past four years. Rig daily leases, which once commanded up to $800,000, dropped to around $200,000 over the period as cheap oil from U.S. shale drilling flooded the market, hitting finances at the field's biggest players.

Ocean Rig completed a restructuring last October that wiped out $3.7 billion in debt and handed control of its equity to investors in its senior debt, among them Avenue Capital Management II LP, BlueMountain Capital Management LLC and Elliott Associates LP.

Another major operator, Seadrill Ltd., filed for chapter 11 bankruptcy protection last year and emerged from bankruptcy in April.

"The Transocean takeover shows that rig operators are betting on sustained higher oil prices going forward," said Peter Sand, chief shipping analyst at Bimco, an industry research group. "They have also made a serious effort to cut their costs, which could make offshore drilling attractive once again."

Transocean Chief Executive Jeremy Thigpen said the takeover will strengthen the company's presence in key markets like Brazil, West Africa and Norway ahead of what "we believe is an imminent recovery in the ultra-deepwater market."

The deal will add nine drillships and two harsh-environment semisubmersibles to the Transocean fleet. Ocean Rig also has two drillships under construction and due for delivery by 2020. Altogether, the deal would boost Transocean's fleet to 57.

Ocean Rig is the Swiss company's second big acquisition in less than a year, following a $1.2 billion takeover of Songa Offshore completed in January.

The deal is subject to approval by shareholders. The companies noted in a statement that shareholders representing 48% of Ocean Rig's shares outstanding support the deal, as does Transocean's third-largest shareholder.

Write to Costas Paris at costas.paris@wsj.com and Kimberly Chin at kimberly.chin@wsj.com

(END) Dow Jones Newswires

September 04, 2018 13:29 ET (17:29 GMT)

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