- Transocean (RIG -5.7%) plunges to all-time lows before trimming losses a bit, following earlier news of its purchase of Norwegian competitor Songa Offshore (OTC:SGAZF).
- Under terms of the deal, Songa shareholders will receive 50% newly issued RIG common shares and 50% in bonds convertible into common shares; RBC analyst Kurt Hallead expects RIG to issue 128.2M shares, including convertibles, diluting current shareholders by 32% to 524.7M shares.
- Evercore ISI analysts like the deal even if the market does not, saying it high-grades RIG's fleet, improves the balance sheet and near term liquidity, and sets up the company nicely for further consolidation of the offshore rig market.
- The firm also says RIG will re-rank its combined fleet as a function of the acquisition, which may result in additional rigs being recycled, and the deal adds $4B in backlog which will be helpful in revolver extension negotiations and could be used to add asset-backed financing.
- The deal is "a sign that we are near the bottom of the [offshore drilling rig] market, and people don't expect asset prices to fall much further," says Swedbank analyst Magnus Olsvik.
- Now read: Discussing Transocean's Proposed Acquisition Of Norway-Based Songa Offshore
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