Feb. 7 (Bloomberg) -- Ensco Plc’s $7.3 billion agreement to acquire rival offshore oil driller Pride International Inc. probably will accelerate the pace of takeovers in the $125 billion industry, analysts said.
Rowan Cos., a Houston-based operator of shallow-water rigs, and DryShips Inc.’s Ocean Rig UDW unit may be the next targets for drillers eager to expand fleets as the search for offshore oil and natural-gas fields intensifies, said Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston.
Buying competitors is an alternative path to growth amid a building boom for deep-water rigs that Barclays Plc analyst James West said is reducing shipyard space from South Korea to Finland.
“This industry is fairly scattered and consolidating this and moving forward on a basis of strength rather than speculation is always a good thing,” said Esa Ikäheimonen, chief financial officer of Seadrill Ltd. today in a telephone interview. Seadrill, based in Bermuda, hasn’t decided yet whether to shed its 9.4 percent stake in Pride and use the cash to pursue other targets, said Ikäheimonen.
Ensco’s stock-and-cash offer will exchange 0.4778 Ensco share and $15.60 in cash for each Pride share under terms of the agreement announced today in a statement. The $41.60-a-share offer is a 21 percent premium to Houston-based Pride’s Feb. 4 closing price.
Access to Markets
Ensco Chief Executive Officer Dan Rabun said the rationale for acquiring Pride was to gain access to Brazil and West Africa, two of the world’s richest exploration regions.
Pride’s customers in Brazil, home to the Western Hemsiphere’s biggest discoveries in three decades, include state-controlled Petroleo Brasileiro SA and OGX Petroleo e Gas Participacoes SA, Rabun said today during a conference call with analysts.
Combining Ensco and Pride “gives us access to markets where we have not been able to previously address ourselves,” Rabun said.
Ensco, based in London, signed its first contract to lease a rig in Brazil last week. By purchasing Pride, Ensco’s Brazilian rig count will climb to 10. Ensco will have five rigs in West Africa, where it previously had no presence, according to a slide presentation posted on the company’s website today.
“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.”
Acquiring a Rival
Rabun’s last attempt to acquire a rival crumbled last year when a bid to buy a 19 percent stake in Bermuda-based Scorpion Offshore Ltd. failed. At the time, Rabun indicated the offer was a stepping stone to an eventual takeover of Scorpion, which is now part of Seadrill.
The Pride 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.
“We view this transaction favorably for Ensco and the offshore drilling market as a whole,” Omar Nokta, head of maritime research at Dahlman Rose & Co., said today in a note to clients.
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.
Rowan, based in Houston, rose $1.19, or 3.3 percent, to $37.77 at 4:00 p.m. in New York Stock Exchange composite trading. Earlier, the stock reached $39 for the biggest intraday increase since Sept. 1.
Dryships, an Athens-based tanker owner that trades on the Nasdaq Stock Market, rose 4 cents to $5.05. In December, the company raised about $500 million by selling a stake in Ocean Rig in a private placement. Dryships said in a Dec. 3 statement that it intends to retain 80 percent ownership of the drilling business.
As a result of the transaction, Ensco’s reliance on shallow-water rigs, which command lower rates than more-sophisticated mid- and deep-water vessels, will shrink to 43 percent of sales from 72 percent, according to the slide presentation.
Shallow vs. Deep-water
Ensco’s fleet will expand 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 said on today’s call that he sees no need to sell any vessels to help finance the acquisition.
The Ensco-Pride agreement includes a $260 million break-up fee, Rabun said.
Transocean Ltd., based in Vernier, Switzerland, is the world’s largest offshore driller.
The purchase price of $41.60 a share 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, according to data compiled by Bloomberg.
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