UK-based Subsea 7 has said that it submitted a bid at the end of last week to acquire the entire issued share capital of McDermott but was rejected by the board of its US-based rival who in turn is in the midst of its own proposed merger with Chicago Bridge & Iron (CB&I).
Subsea 7 proposed to acquire McDermott common stock for US$7 per share, payable entirely in cash or up to 50 per cent in Subsea 7 stock and the balance in cash. This represents a premium of 16 per cent to latest closing share price of McDermott on April 20.
In press statement on the 24 April McDermott said that the Institutional Shareholder Services Inc has reaffirmed its recommendation that McDermott stockholders vote 'for' the merger with CB&I.
McDermott is holding a special meeting of stockholders to vote on the merger will be held on May 2, 2018.
Subsea 7 in its letter to McDermott said that the proposal was subject to the ending of the proposed merger with CB&I. The UK firm said it would also consider increasing its proposed price upon further assessment of McDermott’s business through discussions with McDermott management.
Jean Cahuzac, Subsea 7’s Chief Executive Officer, stated, “Given the attributes of the proposed transaction and our stated ability to further enhance our proposed terms, we encourage the McDermott Board of Directors to reconsider this compelling opportunity to combine two complementary businesses. Our proposal provides equity upside in a company with a robust financial position, as well as a meaningful premium. We see significant merit in such a transaction for all shareholders, and with our financial and legal advisors continue to be open to discussions.”
Audun Martinsen, VP of Oilfield Service Research with Rystad Energy: “The train is about to leave the station. McDermott is the only acquisition target that could make Subsea 7 the market leader in the subsea umbilicals, risers and flowlines (SURF) sector. With this proposed acquisition, Subsea 7 is hoping to strengthen its offshore SURF and engineering capabilities, and it would propel the company beyond TechnipFMC and Saipem to assume the global throne in that segment.”
Oil prices have climbed considerably since December and, according to our analysis of oil market fundamentals, the offshore service market will see a clear comeback as the world will need more offshore production. Hence we think McDermott’s board of directors now faces a bit of dilemma on how to respond to the takeover bid by Subsea 7,” Martinsen concludes.
Subsea 7 added that its proposed transaction would not be subject to any financing conditions or Subsea 7 shareholder approval. It would be subject to regulatory and other customary closing conditions.
Martinsen added: “Oil prices have climbed considerably since December and, according to our analysis of oil market fundamentals, the offshore service market will see a clear comeback as the world will need more offshore production. Hence we think McDermott’s board of directors now faces a bit of dilemma on how to respond to the takeover bid by Subsea 7.”