The long talked-about merger of subsea contractors Acergy and Subsea 7 (SEN, 25/15) moved closer to reality this week with the companies finally talking about specific plans that could see the deal finalised by later this year or early 2011.
The 'new Subsea 7' - which would see the departure of the dreadful Acergy name - would have a market capitalisation of $5.4bn and a backlog of work of $5.3bn.
There have been no fewer than three abortive attempts to bring the companies together over the last few years. The reason behind this desire to amalgamate was explained simply by current and future S-7 chairman Kristian Siem who mentioned at least one recent tender 'that was bigger than our market capitalisation'.
The need for greater financial strength has certainly driven this deal. The two main competitors in the SURF and deepwater construction markets, Saipem and Technip, are bigger engineering and construction conglomerates who have a wider range of oil and gas activities, both onshore - petrochemical and refining work by the French company - and offshore - drilling and fabrication by the Italians.
With operators looking to offload more risk on deepwater projects onto contractors, the fear of being bankrupted by a single failed project has never been far from management's mind. Acergy, for example, has had to handle a $980mn SURF contract with BP in Angola.
Strengths
The operational strength of the merged entity will be based around 43 offshore vessels including S-7 group of new pipelayers and Acergy's latest order, the derrick-lay vessel Borealis; a big rov fleet, much of it engineered and built by S-7; fabrication facilities in Angola in the form of Acergy's Sonamet joint venture and S-7's pipe reel yards in Norway, the Gulf of Mexico and West Africa; and a geographical mix that features a big presence in Brazil's burgeoning sector (S-7) and a long-term presence in West Africa (Acergy).
In addition, an unspoken upside is neither company's exposure to the troubled Gulf of Mexico sector - they jointly have a backlog there of just $100mn - where uncertainty following the BP drillling disaster at Macondo (SEN, 27/6) is hanging like a shroud over many companies.
Although the managements of both companies have indicated that similar 'company cultures' have made many issues easy to deal with, two big ones - share value and governance - have held up the deal due to the different shareholdings and attitudes.
Acergy is a creature of the stock market, constantly stroking analysts to stay in their good graces. S-7 - itself created by the merger of Rockwater and DSND Subsea a number of years ago - on the other hand, has been dominated by one big shareholder, Siem Industries, and its leading player, Kristian Siem.
The deal will see each S-7 share valued at 1.065 Acergy share, giving its shareholders a 46% stake in the new entity.
One significant benefit of this deal is the re-balancing of the combined order book. Acergy's backlog of $2.7bn is dominated (81%) by lump sum jobs, while S-7's forward order book of $2.6bn is over-weighted by dayrate work (74%). The new company will be nearly 50/50.
New same team
The new management will be lead by Acergy CEO Jean Cahuzac and S-7 COO John Evans assuming the same roles in the new organisation. The board - nine strong and mostly populated by independent directors - will be led by Siem and Acergy chairman Sir Peter Mason who takes on the new role of senior independent director. Somewhat sidelined in the new team is S-7 CEO Mel Fitzgerald who is simply a board director.
What remains to be concluded is no small matter. Siem has thrown his weight behind this deal, but other shareholders from both companies will have a say.
And then there are the competition authorities. With the low level of activity in the GoM, this deal will be unlikely to trouble the US Dept of Justice's Anti-Trust Division. In Europe, though, where both companies are strong, there could be closer scrutiny, but then again the less than robust state of the industry as it comes out from under the shadow of the worldwide recession may result in this deal being waved through.
FROM SUBSEA ENGINEERING NEWS
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