Ensco Plc, the oil driller with rigs from Mexico to Indonesia, agreed to acquire Pride International Inc. for $7.3 billion in a deal that will create the world’s second-largest offshore drilling company.
Investors will receive 0.4778 Ensco share and $15.60 in cash for each Pride share under terms of the agreement announced today by London-based Ensco in a statement. The $41.60 a share offer is a 21 percent premium to Houston-based Pride’s Feb. 4 closing price.
The Pride acquisition will expand Ensco’s presence to Brazil and West Africa, two of the fastest-growing offshore drilling markets in the $125 billion industry, said Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston. Ensco’s presence in Brazil will jump from one rig to 10 as a result of the Pride agreement.
“Ensco’s been trying to break into Brazil for a long time but they had no bodies on the ground, so from that perspective this deal makes a lot of sense,” Uhlmer said today in a telephone interview. “Secondarily, they’re gaining exposure to West Africa, where they haven’t had a good floating presence.”
The acquisition is Ensco Chief Executive Officer Dan Rabun’s first since a failed bid in May to take control of Bermuda-based driller Scorpion Offshore Ltd. The purchase will be Ensco’s largest and is the second-biggest acquisition of a U.S. oil services company in the last year, according to data compiled by Bloomberg. In August, Schlumberger Ltd. acquired Smith International Inc. for $9.63 billion.
The combination will cut at least $50 million in pretax operating costs and immediately add to earnings, Ensco said. Ensco’s fleet of offshore drilling vessels will add expand its fleet by more than 60 percent to 74 rigs, including 21 capable of operating in seas of 4,500 feet (1,372 meters) or deeper.
Rabun will remain CEO and Chief Financial Officer James W. Swent also will continue in his current post. The rest of the management team will be announced at a later date and will include Pride executives, Ensco said.
The deal will boost Ensco’s backlog of unfilled orders to $10 billion, the company said in the statement. Ensco expects the deal to close as soon as the second quarter of this year. Ensco said it won’t cut its 35-cent-a-share quarterly dividend as a result of the purchase. The deal requires shareholder approval.
Premium to Deals
Ensco fell $2.28, or 4.2 percent, to $52.13 at 4:00 p.m. in composite trading on the New York Stock Exchange. Pride rose $5.42, or 16 percent, to $39.80, the largest gain in more than two years.
The purchase price of $41.60 is a 26 percent premium compared with Pride’s 20-day moving average. That compares with a 31 percent premium paid for the 63 U.S. oil services companies acquisitions announced during the last year. Ensco is paying 17.8 times earnings before interest, taxes, depreciation and amortization for Pride, compared with a median of 11.9 for six of the announced deals.
Ensco’s lead financial adviser and strategic adviser is Deutsche Bank AG. Citigroup Inc. also served as a financial adviser and its legal adviser is Baker & McKenzie LLP. The financial adviser for Pride is Goldman Sachs & Group Inc. and its legal advisers are Baker Botts LLP and Wachtell, Lipton, Rosen & Katz.
Deutsche Bank and Citigroup have committed to finance incremental debt related to the sale, Ensco said.
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