Carl C. Icahn Issues Open Letter To Transocean Shareholders
NEW YORK, April 4, 2013
NEW YORK, April 4, 2013 /PRNewswire/ --Carl C. Icahn today delivered the
following open letter to shareholders of Transocean Ltd.
Dear Fellow Transocean Shareholders:
THE 2013 TRANSOCEAN ANNUAL GENERAL MEETING WILL BE HELD ON MAY 17, 2013. MY
AFFILIATES AND I OWN APPROXIMATELY 5.43% OF THE SHARES OF TRANSOCEAN.
WE URGE SHAREHOLDERS TO VOTE AT THE 2013 TRANSOCEAN ANNUAL GENERAL MEETING FOR
THE ICAHN PROPOSAL TO INCREASE THE DIVIDEND AT TRANSOCEAN TO $4.00 PER SHARE
AND FOR THE ICAHN PROPOSAL TO ELECT JOSE MARIA ALAPONT, JOHN J. LIPINSKI AND
SAMUEL MERKSAMER TO THE TRANSOCEAN BOARD OF DIRECTORS.
We believe that shareholders have the opportunity to increase shareholder
value by supporting our proposals and replacing Michael Talbert, Thomas Cason
and Robert Sprague, directors who presided as members of the Transocean Board
during the transactions described below, which we believe destroyed
approximately $11 billion of shareholder value and that continues to pursue
strategies, as described below, that we believe are likely to destroy as much
as $3 billion of further value in the future.
As more fully described below, we believe that the Transocean Board:
ohas destroyed over $10 billion of value in the Global Santa Fe Merger
ohas destroyed almost $1 billion of value by pursuing the Aker acquisition
ois likely to destroy $3 billion of additional value by pursuing the
current capital allocation strategy
Transocean chairman Michael Talbert has been at the helm of Transocean for 20
years, and along with Thomas Cason and Robert Sprague (who have sat
respectively, for 20 and 10 years on the Board of Transocean) these directors
cannot avoid their share of responsibility for the performance of Transocean
and its shares. These Board members are now up for reelection and shareholders
have the opportunity, in our opinion, to close the valuation gap at Transocean
by replacing the directors that oversaw the performance at Transocean, and by
increasing the dividend to $4.00 per share. We believe that a $4.00 per share
dividend will not only result in an appropriate and meaningful return of value
to shareholders, but will also force discipline on the Board.
The actions taken by the Board over the past several years have, in our
opinion, destroyed billions of dollars of value, which we believe is clearly
reflected in the performance of Transocean shares when compared to its
We believe that Transocean shares have underperformed as a direct result of
the poor decisions made by the Transocean Board. We further believe, for the
reasons set forth below, that under the current capital allocation strategy
championed by this Board, Transocean will continue to underperform its peers.
Transocean Relative Stock Appreciation
11/07-Present Avg. 2009-Present 11/07-3/10 2011-Present
Post GSF "Trough" GSF To Macando Post Macando
Diamond Offshore --20.0% 1.8% -9.6% 13.0%
Ensco 7.4% 66.1% -16.8% 8.3%
Noble --25.0% 22.2% -18.3% 4.9%
Seadrill 68.4% 144.5% 7.6% 8.5%
Atwood Oceanics 18.0% 96.6% --20.6% 37.7%
Rowan -4.4% 83.2% --17.8% -2.7%
Comp Set Average 7.4% 69.1% -12.6% 11.6%
Transocean -63.2% -29.1% --37.1% -27.3%
Global Santa Fe
In 2007, the same directors who are now using over $5 billion of capital to
pay down low coupon debt at Transocean oversaw the purchase of Global Santa Fe
("GSF") while simultaneously leveraging the balance sheet to pay a special
dividend. The GSF acquisition occurred at the height of a global bull market,
and while the timing itself was unfortunate, focusing on timing obfuscates
what we view as the fundamental problems with the acquisition.
We believe that in pursuing GSF, Mr. Talbert and the Board acquired a fleet
which substantially increased the age and volatility of Transocean's asset
base while simultaneously increasing financial leverage. Transocean paid
almost $18.2 billion for the GSF assets which we believe are worth only $7.5
billion today, thereby destroying $10.3 billion of shareholder value. 
Even using an estimate of Transocean's current net asset value of $68 per
share to value the stock portion of consideration, the purchase price comes to
$12.75 billion (about $11 billion at today's depressed market price) meaning
that over $5 billion of shareholder value was destroyed using this metric.
Not only did the Board approve the purchase of old and volatile assets while
simultaneously leveraging the balance sheet, but even the strategic logic
behind this acquisition (as stated in the merger proxy) proved incorrect. This
acquisition represented the pinnacle of a decade of deal making and
consolidation, which Transocean justified under the premise that a larger
company would benefit from cost savings, diversity and an "enhanced industry
presence" according to their proxy statement. However, in 2006, before the
GSF acquisition, Transocean was running SGA at 2.3% of sales and post the GSF
acquisition for the last three years Transocean has been at 3.2% of sales.
Clearly, the consolidation benefits never materialized. In comparison, while
Transocean was busy paying top dollar for old GSF assets, Seadrill was
building new assets and driving shareholder returns.
In 2011, Transocean purchased Aker Drilling in an apparent attempt to upgrade
their fleet following the damage that we believe was caused by the GSF
acquisition. Transocean purchased four rigs in the Aker Drilling transaction
(two of which were still under construction) at a premium to new build
construction costs. Although Transocean had the ability to utilize cash to
fund the acquisition, instead, Mr. Talbert and the Board, in what appears to
us to have been an emphasis on credit ratings over shareholder returns, issued
almost 30 million shares of Transocean at $40.50 per share immediately after
the acquisition of Aker Drilling. In essence, Transocean bought assets at a
premium to net asset value and paid for them by issuing shares at
substantially below net asset value, in our opinion destroying almost $840
million ($2.50) per share in value. As observed by Morgan Stanley:
"We estimate the secondary offering will create a total NAV loss of ~$837m,
raising the implied value paid for the two semis by ~$419m apiece, thereby
bringing the total implied amount paid for each harsh environment semi to a
high ~$1.4bn. Conversely, at ~$43/sh, the implied value for each of RIG's
UDW floaters (including the Aker rigs) is about $293m, a sharp difference
from the "price paid" for the Aker semis." Ole Slorer – Morgan Stanley
November 29, 2011.
The New Transocean Plan
The Board of Transocean is now endorsing a new plan whereby Transocean will
invest billions of dollars in building low return assets and repaying low
coupon debt, rather than returning capital to shareholders. Transocean is
accepting lower returns on new build assets in exchange for long term
contracts to reduce the volatility of their business. However, at the same
time Transocean is using massive amounts of cash flow to reduce debt. In stark
contrast to the GSF acquisition, in which Transocean increased volatility and
leverage, Transocean is now going to the other extreme and decreasing both
volatility and leverage thereby driving returns to below its cost of capital.
In our view, a balanced approach to managing financial leverage and volatility
would yield superior returns for shareholders.
Transocean's plan appears to use $8.75 billion of capital over the next
several years to build new assets and reduce debt, generating an average after
tax return of approximately 7%. The sheer size of this investment is equal to
almost $25 per share. In fact, a $5 billion ($13.92 per share) investment in
debt reduction would result in less than $200 million per year in after tax
income ($0.57 per share). Based on an 8.25x 2015 P/E multiple, $8.75 billion
of capital invested in this manner would only add $5.1 billion of value,
thereby destroying another $3.6 billion of shareholder value. Furthermore, if
Transocean chooses to pay down that much debt, the terms of the underlying
debt documents will require Transocean to pay hundreds of million in debt
prepayment penalties erasing even this modest benefit. Recently,
Transocean established a 10% weighted average cost of capital ("WACC") in
their management incentive plan for 2012. Generating EBITDA in excess of this
WACC (which they describe as "Cash Flow Value Added"), according to the Board,
is "closely correlated with total shareholder return" and therefore results in
high incentive payouts to management. We cannot help but observe that if the
Board understands the "close correlation" between such Cash Flow Value Added
and "total shareholder return", then we believe that they should also
understand that their investment plans are below their own target, and will
have a "close correlation" to any negative total returns for shareholders.
Further, shareholders should not be surprised if the Board realizes that these
targets will not be met, and moves the goal posts to assure bonus payments
continue to flow to management regardless of meeting these targets.
Support The Icahn Proposals
We urge shareholders to take control of decision making and capital allocation
by replacing longstanding Transocean Board members and by approving a
substantial dividend of $4.00 per share.
The poor decisions of the Transocean Board, as evidenced by the Global Santa
Fe and Aker Drilling transactions and the current capital allocation policy,
and as reflected in the performance of Transocean shares relative to its
peers, persuades us that it is time for Talbert, Cason and Sprague to go. We
have proposed directors who we believe are capable and willing to develop a
value added strategy for shareholders, and who are prepared to focus the
company on higher return opportunities and distribute more cash to
VOTE FOR Mr. Alapont, who has more than 30 years of global leadership
experience at both vehicle manufacturers and suppliers, with business and
operations responsibilities in the Europe, Middle East and Africa, Asia
Pacific, and Americas regions.
VOTE FOR Mr. Lipinski, who has had a long and successful career in the energy
industry, including as CEO and President of CVR Energy, Inc. and CVR Refining,
LP, and has a deep understanding of operations and executive management.
VOTE FOR Mr. Merksamer, who has extensive investing experience and strong
understanding of business operations and finance.
VOTE FOR A $4.00 PER SHARE DIVIDEND.
We look forward to having further communications with shareholders as the
Annual General Meeting approaches.
Very truly yours,
Carl C. Icahn
NOTICE TO INVESTORS
SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER DOCUMENTS
RELATED TO THE SOLICITATION OF PROXIES BY Carl C. Icahn AND HIS AFFILIATES
FROM THE STOCKHOLDERS OF TRANSOCEAN LTD. FOR USE AT ITS 2013 ANNUAL GENERAL
MEETING WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION, INCLUDING INFORMATION RELATING TO THE PARTICIPANTS IN SUCH PROXY
SOLICITATION. WHEN COMPLETED, A DEFINITIVE PROXY STATEMENT AND A FORM OF PROXY
WILL BE MAILED TO STOCKHOLDERS OF TRANSOCEAN LTD. AND WILL ALSO BE AVAILABLE
AT NO CHARGE AT THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT
HTTP://WWW.SEC.GOV. INFORMATION RELATING TO THE PARTICIPANTS IN SUCH PROXY
SOLICITATION IS CONTAINED IN THE SCHEDULE 13D RELATING TO TRANSOCEAN LTD.,
FILED BY THE PARTICIPANTS ON JANUARY 25, 2013 (THE "SCHEDULE 13D"). EXCEPT AS
OTHERWISE DISCLOSED HEREIN, THE PARTICIPANTS HAVE NO INTEREST IN TRANSOCEAN
LTD. OTHER THAN THROUGH THE BENEFICIAL OWNERSHIP OF SHARES, PAR VALUE CHF
15.00, PER SHARE, OF TRANSOCEAN LTD., AS DISCLOSED IN THE SCHEDULE 13D, AS MAY
BE AMENDED FROM TIME TO TIME. THE SCHEDULE 13D, AS MAY BE AMENDED FROM TIME
TO TIME, IS AVAILABLE AT NO CHARGE AT THE SECURITIES AND EXCHANGE COMMISSION'S
WEBSITE AT HTTP://WWW.SEC.GOV.
 The $7.5 billion value of GSF assets was calculated through public
information. GSF assets that have been subsequently sold were estimated using
net proceeds from the sale of those assets, pro-rated when applicable. Value
of currently owned assets were estimated using a comparison of rig market
values by type presented in a published Morgan Stanley research report to type
and capability of units as presented in Transocean filings.
 Permission to use this quotation was neither sought nor obtained.
 We have assumed a 4.09% weighted average pre-tax cost of debt based on the
current average trading levels of 5, 10 and 20 year Transocean bonds. Debt
repayment is based on Transocean's public guidance to repay down to as little
as $7 billion of gross debt. Asset investment assumes Transocean builds one
additional ship as discussed on recent earnings call. Transocean bonds are
currently callable only by paying a make-whole penalty.
SOURCE Icahn & Co.
Contact: Susan Gordon, (212) 702-4309
Press spacebar to pause and continue. Press esc to stop.