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Rowan Slips After $1.1 Billion Sale of Manufacturing Unit

Rowan Cos. fell 8 cents after reporting that it will sell LeTourneau Technologies Inc., the manufacturing arm it’s been looking to divest for three years, to Joy Global Inc. (JOYG) for $1.1 billion in cash.

Rowan fell 8 cents to $37.96 at 4:00 p.m. in New York Stock Exchange composite trading. Shares of the Houston-based company rose as much as 5 percent earlier today. Shares fell as crude oil futures in New York dropped 2.3 percent to $97.37 a barrel.

Rowan, which expects regulatory approval for the deal within 60 days, plans to use the $875 million in after-tax proceeds to expand its fleet of shallow-water rigs or to acquire a new ultra-deepwater vessel, the driller said today in a statement.

“The company now stands out as an acquisition candidate as its jackup fleet consists of a significant number of high-spec rigs with no major capital expenditures beyond the next 2-3 quarters,” Omar Nokta and James Crandell, analysts at Dahlman Rose & Co., wrote today in a note to investors.

The manufacturing unit designs and builds jack-up rigs, shallow-water drilling vessels that have retractable legs that can extend to the seafloor. It also builds front-end loaders and electric-powered log stackers for the mining and forestry industries.

The manufacturing unit had been valued at roughly $650 million, as Rowan ordered fewer new rigs from LeTourneau, Joe Hill and other analysts at Tudor Pickering Holt & Co. wrote today in a note to investors. The higher price may be due to Joy’s expected cost savings, according to the note.

Rowan is still looking to sell or spin off its fleet of 30 onshore rigs, leaving the company as an offshore contractor with 31 shallow-water vessels, including those under construction.

Dahlman Rose, which estimated LeTourneau’s value at about $900 million, sees the land rig business valued as much as $450 million, according to its note.

Rowan, which has 23 buy ratings from analysts, 13 holds and 1 sell, has climbed 13 percent this year.

(Rowan will hold a conference call to discuss the sale at 11:30 a.m. New York time today, accessible on the company Web site at http://www.rowancompanies.com.)

To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net.

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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