Norwegian oil services company Acergy S.A. (OSL.ACY) said on Monday that it has made a deal to merge with Subsea 7 Inc. (OSL.SUB). The combined companies will form the world's biggest seabed-to-surface engineering and construction firm.
Acergy, which is a seabed-to-surface engineering and construction contractor to the offshore oil and gas industry worldwide, said that, after the merger, the combined firm will have a market value of $5.4 billion and employ 12,000 people.
The new company, Acergy said, would be called Subsea 7 and will offer "the full spectrum of subsea services." Currently, Acergy has a major presence in northern Europe, Canada, Africa, and the Mediterranean. Subsea 7 has a major presence in South America.
"Both Boards believe that the combined entity will be better able to meet the growing size and technical complexity of subsea projects, driven by the demand to access ever more remote reserves in increasingly harsh environments," Acergy said in a statement.
“The combination will create a global leader in seabed-to-surface engineering and construction able to provide clients a step-change in service offering. This includes engineering, procurement, installation, and commissioning services for Subsea Umbilical, Riser and Flowline projects (SURF), Conventional field development and Life-of-Field services (including Inspection, Repair and Maintenance, Survey and Decommissioning).”
"The new entity will provide access to a high-end, well diversified fleet, comprising in aggregate 43 vessels that will allow more flexibility to optimize fleet schedules. It will also be able to offer clients a greater depth of project management, engineering, technical expertise and high-value technologies. The excellent strategic fit of the different strengths of each company positions the new company to deliver enhanced long-term value for all stakeholders," the company said.
The deal, which is expected to close at the end of 2010 or the first quarter of 2011, will create annual synergies of at least $100 million, Acergy said, through optimization of operating costs and more efficient deployment of their vessel fleet. The new entity will trade on the Nasdaq Global Select Market and the Oslo Stock Exchange, it added.
Subsea 7's shareholders will receive 1.065 Acergy common shares for every Subsea 7 common share. Following the merger, Subsea 7's shareholders will, in aggregate, hold 46 percent ownership in the new company based on the number of share currently outstanding.
The new entity will be chaired by Subsea 7's current Chairman Kristian Siem. "The combination is an excellent strategic fit, with industry fundamentals strongly supporting the logic of the combination," Siem said.
"The size of the combined company will be in harmony with the size of the projects we perform for our clients. It also aligns perfectly with our strategy of providing high-quality subsea engineering and construction services for our clients whilst providing increased value for all our shareholders," Siem said, adding, "The combined entity will be well positioned to take advantage of future growth opportunities in the subsea market globally."
The combination with Acergy is an excellent strategic fit for both the companies, their people and clients. We believe that the combination of Acergy's and Subsea 7's people along with a diverse and highly complementary fleet, will provide a great vehicle for creation of additional client and shareholder value. This coming together is a tremendous opportunity for personal and professional development for Subsea 7 and Acergy employees," said Subsea 7's CEO Mel Fitzgerald.
According to Acergy Chairman Sir Peter Mason KBE, "The combined entity will have a stronger balance sheet, enabling efficiencies of scale and capital deployment."
"The enhanced operational capability will produce significant benefits for our clients and provide substantial growth opportunities for our people, which is expected in turn to deliver greater value creation for our shareholders," Mason said. Mason will serve as a senior independent director in the new company.
Acergy CEO Jean Cahuzac said in a conference call that the "accident in the Gulf of Mexico puts even more emphasis on the need to work together on the technology and project management side."
"The (Gulf) industry has to learn from this incident, but this will mean risk assessment will be more efficient...Projects are becoming larger and more complex, and a bigger company will be better equipped to meet these challenges," Cahuzac, who will serve as the CEO of the new entity, said.
"We have long argued the industrial logic of a deal, given it would create a subsea player which could provide the full host of services," said Evolution Securities in a note to clients. Evolution, a securities firm, is unconnected with either Acergy or Subsea 7.
According to Arctic Securities analyst Erik Toenne, the new entity will "become the world's leading subsea player." "There are large synergies from bids, land-based organizations, engineering, supply chain management and fleet allocation," Toenne said.
Rothschild is acting as financial advisor to Acergy. Citi, Deutsche Bank, and DnB NOR Markets are acting as financial advisors to Subsea 7.
Shares of Acergy, which is credited with building the world's longest underwater gas pipeline in 2006, closed up 9.64 percent at NOK110.30 on the Oslo Stock Exchange on Monday. Subsea 7 closed up 9.05 percent at NOK113.30.
