Kentz Jumps as $435 Million Deal Offers Shale Expansion

Kentz Corp., an Irish oil engineering company, rose to a record in London trading after agreeing on a $435 million acquisition that will see it expand into shale and into Latin America.

Kentz surged 13 percent to 657.5 pence, the highest closing price since starting to trade in February 2008, after agreeing to buy the field-solutions unit of U.S.-based Valerus.

“Valerus has technical capabilities, allowing us to expand to new geographies, and gives us new clients,” Kentz Chief Executive Officer Christian Brown said today by phone. “We have found a very healthy, very profitable business that supplements our strategy.”

Oil-service providers are snapping up U.S. businesses to take advantage of a boom in shale exploration in the country, which now sees thousands of wells drilled every year. Engineering companies have also flocked to areas off Brazil, the site of the largest oil discovery in the Americas since 1976, as investment in exploration and production there increases.

Kentz will finance the transaction by drawing down a $400 million loan, with the remaining funds coming from its own cash reserves or a new $160 million revolving facility, it said in a statement. The deal marks a turnaround for the company, which was itself the subject of takeover bids earlier this year.

Earnings Prospects

The company expects the purchase to add 20 cents, or 30 percent, to earnings per share next year, Brown said. Kerbet Ltd., its largest shareholder, will vote in favor of the transaction, according to Kentz.

“This is a very solid acquisition and will be earnings-enhancing,” VSA Capital Ltd. said in a note. “Kentz continues to make great progress in terms of contract wins and now this acquisition, making it one of our key picks in the sector.”

The company expects the purchase to bring in “high-margin” contracts as it expands in the U.S. and taps opportunities in Latin America, where Valerus is present in Brazil, Mexico, Colombia and Venezuela, Kentz said.

Valerus’s field-solutions unit includes processing and treating and production-equipment provision, the Houston-based company said in a separate statement. Valerus’s remaining units will be split off to form a new company to be named next year.

Kentz was advised on the transaction by Investec Plc. The company is looking to make a further “small, bolt-on engineering acquisition” valued at $5 million to $10 million, Brown said, without giving a timeframe for the purchase.

This year Kentz received takeover bids from Amec Plc and Germany’s M+W Group GmbH. Its board rejected both offers.

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