Global Santa Fe and Transocean to form drilling giant; H-P nabs Optibase

The Houston oil drillers GlobalSantaFe Corp. and Transocean Inc. said Monday they agreed to join forces to create a $53 billion giant, enabling greater leverage while expanding their existing offshore drilling service

By MARKETWATCH
July 24, 2007 07:33
3 minute read.

 
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MarketWatch: In-depth global business coverage The Houston oil drillers GlobalSantaFe Corp. and Transocean Inc. said Monday they agreed to join forces to create a $53 billion giant, enabling greater leverage while expanding their existing offshore drilling services. Terms call for Transocean stockholders to get $33.03 in cash and 0.6996 share of the combined company for each share they hold, while GlobalSantaFe holders will get $22.46 in cash and 0.4757 share. Total cash to shareholders will be $15b., funded through a bridge loan due one year after closing. Analysts said the deal is a way for the company to recapitalize its debt while paying shareholders a large dividend. One of the biggest challenges for oil drillers as a group has been the tremendous backlog and great business outlook, but low share valuation relative to the market, Natexis Bleichroeder analyst Roger Read said. "So the question has been: how do you translate backlog into value for shareholders?" The new company, Transocean, will have a $33b. revenue backlog. The deal also enables a $15b. recapitalization, a combined amount greater than what the companies could have obtained individually, Read said. Furthermore, the cost savings - $100 million to $150m. a year by 2010 - are hefty, said Mark Urness, an analyst with Calyon Securities. "Basically, that's a million dollars per rig per year, which is pretty aggressive cost savings," Urness said. Layoffs are also an obvious part of future saving given the personnel overlap, he said. "This transaction will enhance our high-end floater fleet, including five newbuild ultra-deepwater units, while growing our position in the worldwide jackup market, especially in the Middle East, West Africa and North Sea," Transocean Chief Executive Officer Robert Long said in a statement. The new company will retain principal offices in Houston and trade on the New York Stock Exchange under the symbol "RIG." Following the merger, GlobalSantaFe Chairman Robert Rose will become chairman of the new company, while Transocean's Long will keep the same position in the merged firm. Goldman Sachs advised Transocean on the transaction, while Lehman Brothers advised GlobalSantaFe. In the tech sector, Opsware Inc. shares surged more than 36% Monday, rallying after Hewlett-Packard Co. said it would acquire the data-center software company for a total value of $1.6b. The deal assigns Opsware a value of $14.25 a share, and includes all of the company's existing cash and debt, as well as all of Opsware's outstanding stock. H-P, which expects the deal to close before the end of its fiscal fourth quarter this year, intends on incorporating Opsware into its software business. Opsware makes software for automating the operations of corporate data centers. Opsware's shares climb $3.70 in early action, trading at $13.98 after the acquisition announcement. H-P's shares, part of the Dow Jones Industrial Average, added 43 cents to trade at $48.94. Opsware, founded as Loudcloud by Netscape creator Marc Andreessen, reported a loss of $16.1m., or 16 cents a share, on $101.7m. in sales for the fiscal year ended January 31. After the deal closes, Opsware Chief Executive Ben Horowitz will join Palo Alto, Calif.-based H-P and is expected to become head of the company's business technology optimization organization. The acquisition is the latest in a string of deals by H-P to add to its software business portfolio and build up offerings aimed at the corporate data-center management market. In this vein, H-P acquired Mercury Interactive and Peregrine Systems since December 2005. When it reported second-quarter results in May, H-P said software revenue grew 58% from a year ago to $523m., while the division's operating profit climbed to $42m. from just $3m. in the same period in 2006. Separately, H-P said it would acquire Neoware Inc. , a maker of virtualization and thin-client computing technologies, for $16.25 a share. Neoware's shares added 58 cents, or nearly 4%, to $15.82 after the deal was announced. H-P expects the deal, valued at $214m., to close in its fourth fiscal quarter, with Neoware to become part of the business desktop unit of H-P's personal systems group. MarketWatch: In-depth global business coverage

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