Home Region Americas Subsea 7 moves to acquire McDermott for $2bn, wants CB&I deal scrapped April 23rd, 2018 Grant Rowles Americas, Europe, Offshore

Kristian Siem-led Subsea 7 has proposed a deal to the board of US offshore firm McDermott International to acquire the entire issued share capital of the company at $7 a share, valuing the company at near $2bn.

The offer from Subsea 7 is priced at a 15.7% premium to McDermott’s last closing share price, and the deal will be funded either entirely in cash or including up to 50% in Subsea 7 shares.

While the initial offer has been rejected, Subsea 7 told McDermott that it is even willing to increase its offer “upon further assessment of McDermott’s business through discussions with McDermott management”.

The deal is subject to the termination of McDermott’s $6bn merger with CB&I which was announced late last year.

Jean Cahuzac, CEO of Subsea 7, commented: “Given the attributes of the proposed transaction and our stated ability to further enhance our proposed terms, we encourage the McDermott Board of Directors to reconsider this compelling opportunity to combine two complementary businesses. Our proposal provides equity upside in a company with a robust financial position, as well as a meaningful premium. We see significant merit in such a transaction for all shareholders, and with our financial and legal advisors continue to be open to discussions.”</s>April 23 (UPI) -- Norwegian offshore services company Subsea 7 announced Monday it made a $2 billion unsolicited bid to take over McDermott International, a U.S. rival.

Subsea 7 said it was offering $7 per share for McDermott, which is a 16 percent premium to Friday's closing price. A similar proposal from Subsea 7 was tabled Friday, but rejected by McDermott shareholders.

"We see significant merit in such a transaction for all shareholders, and with our financial and legal advisors continue to be open to discussions," Jean Cahuzac, Subsea 7's chief executive officer, said in a statement.

The proposal from Subsea 7 is the latest in a steady string of mergers for companies that provide services for the upstream, or exploration and production, side of the energy sector. Subsea 7 and Schlumberger, the largest services firm in the world, formed a joint venture partnership in February that was based on a 2015 arrangement to coordinate broad offshore development work under one umbrella.

Schlumberger last week reported first quarter earnings of $7.8 billion were up 14 percent from the same period last year, but down 4 percent from the fourth quarter.

McDermott, meanwhile, is working on a $6 billion merger with engineering firm Chicago Bridge & Iron. Both signed contracts for work in Saudi Arabia and the merger proposal in December followed the $4.5 billion in agreements signed between the Saudi Arabian Oil Co., known informally as Saudi Aramco, and a handful of service contractors for "megaprojects" envisioned in the energy-rich kingdom.

McDermott offered no comment on the Subsea 7 offer. Last week, David Dickson, the company's CEO, said it was logical for his company to team up with CB&I as it would diversify McDermott's client base. All of McDermott's shareholders were called on to vote for the merger.

Subsea 7, for its part, said it was keen on discussing a sweeter offer with McDermott's management.

"The proposal is subject to the termination of McDermott's pending transaction with CB&I," the Norwegian company stated.</s>Subsea 7 offers to acquire US rival McDermott for $2bn

Subsea 7 confirmed that it has recently made an unsolicited bid to acquire its rival US-based offshore oil services company McDermott International for around $2bn.

However, the offer from the UK-based firm was rejected by McDermott, which is in the middle of finalizing a $6bn merger deal with Chicago Bridge & Iron Company (CB&I).

Subsea 7 revealed that it had offered to acquire McDermott for $7.00 per share.

The UK firm said that it is willing to come up with an improved offer for McDermott. Subsea 7 has claimed that it has the ability to quickly execute a definitive agreement in this regard owing to its strong balance sheet supported by a significant net cash position.

Subsea 7 CEO Jean Cahuzac said: “Given the attributes of the proposed transaction and our stated ability to further enhance our proposed terms, we encourage the McDermott Board of Directors to reconsider this compelling opportunity to combine two complementary businesses.

“Our proposal provides equity upside in a company with a robust financial position, as well as a meaningful premium. We see significant merit in such a transaction for all shareholders, and with our financial and legal advisors continue to be open to discussions.”

Subsea 7 said that its proposal will be subject to McDermott’s scrapping of the merger agreement with CB&I, which was approved last month by a Russian antitrust body. The deal has secured all the mandated competition authority approvals and is now subject to meeting of customary conditions such as approval by stockholders of McDermott and CB&I.

In a letter to the board of directors of McDermott, Subsea 7 wrote that it was offering a superior proposal compared to the proposed merger of the US firm with CB&I.

Subsea 7 also said that its combination with McDermott will be well positioned to handle offshore EPCI projects with their expanded conventional and deepwater expertise, experience and assets.

The UK firm also believes that the enlarged company will have increased opportunity to grow the positions of Subsea 7 and McDermott in markets with solid long-term growth prospects, including life of field services, renewables and decommissioning.

Image: Subsea 7’s Seven Arctic vessel in operation. Photo: courtesy of McDermott International, Inc.</s>Chicago Bridge & Iron Co. was only a week away from tying the knot with the Houston engineering frim McDermott International. But Subsea 7 has swooped in to break-up the deal, offering sweeter terms McDermott to walk away from CB& I and combine with the U.K. company.

McDermott shares soared Monday after Subsea 7, a London engineering company, announced a hostile, a $2 billion bid for McDermott. McDermott rejected the offer, saying it preferred its pending merger with CB&I of The Woodlands, but investors still drove McDermott stock up nearly 16 percent.

A tie up between McDermott and Subsea 7 would create the largest supplier of subsea equipment - umbilicals, risers and flowlines - that connects offshore platforms to the wells and pumps that move oil from the bottom of the ocean, propelling the combined company past European rivals TechnipFMC and Saipem. The deal would come as big oil companies prepare to move forward with more offshore projects than last year, a projected two-thirds increase as Brent crude from the North Sea, the global oil benchmark, hovers close to $75 a barrel.

“A lot more oil field projects will actually be commercial at these prices,” said Audun Martinsen, an analyst at Norwegian research firm Rystad Energy. “It’s going to be much more active than last year.”

In a letter last week, Subsea 7, which declined to comment, told McDermott it’s willing to raise its initial bidding price of $7 a share -- 15 percent premium over the average share price over the past 20 business days - but that it needs to enter official merger talks and gather operational information to assess how much it would pay. Subsea is banking on investors pressuring management to take a closer look at the deal, or move the shareholder vote on the CB&I transaction from May 2.

Subsea executives haven’t talked about the company’s next move will be, but said they have had informal discussions before with McDermott officials about the possibility of a closer relationship.

One big reason Subsea 7 wants to buy McDermott is that McDermott earns 90 percent of its oil business revenue from the Middle East and Asia, where it has contracts with Saudi Aramco, and is building large projects in India, as well as Australia. Eighty-five percent of Subsea 7’s revenue comes from the North Sea, Africa and North and South America.

Rystad said a spate of new offshore projects could lift McDermott’s annual market growth 6 percent if it went with Subsea 7; 4 percent if it sticks with CB&I. Combined, Subsea 7 and McDermott would have more than $9 billion in a backlog of orders and more than $6 billion in revenue.

“We believe that we are offering a superior proposal to your proposed combination” with CB&I, Subsea Chairman Kristian Siem and CEO Jean Cahuzac said in the letter.

McDermott said it rejected Subsea 7's offer because it wasn’t in the best interests of the company or shareholders because it undervalues the company. It plans to move forward with a shareholder vote on the CB&I deal next next week. egulators have already signed off on it. The company declined to comment.

Shareholder advisory firms Glass Lewis and the Institutional Shareholder Services have both recommended McDermott investors vote for the pairing with CB&I, saying the transaction diversifies its business lines and geographic footprint, could increase revenue growth in new markets and cut costs.

But McDermott investors have been skeptical of the deal with CB&I, an energy engineering and construction that focuses on refining, petrochemical, LNG and power projects. Those investors wonder what good it would do to diversify into those businesses, which don’t seem to be growing as fast as the offshore sector this year. Rystad estimated CB&I’s businesses would remain largely flat this year as the offshore sector begins to recover after a long downturn.

Should McDermott choose Subsea 7, it could leave CB& I in the lurch. CB&I has struggled in recent years to the point it was at risk of violating loan agreements last summer before reaching deals with lenders, which including selling its technology unit to pay off most of its debt. CB&I’s stock price has dropped from more than $80 a share at the height of the oil boom in 2014 to $12.65 a share on Monday.

CB&I did not respond to a request for comment.

Although the McDermott-CB&I deal was touted as a merger of near equals, McDermott is the acquiring company and the McDermott leadership would remain in charge if the deal was completed. When the McDermott-CB&I merger was announced in December, McDermott was valued at more than $2 billion. McDermott’s stock market value subsequently slipped, falling to $1.73 billion by Friday, before surging to almost $2 billion on Monday.

For Subsea 7, McDermott is the only company it could buy that would put it at the top of the subsea engineering market. Rystad Energy believes oil companies will sanction 60 percent to 70 percent more offshore projects this year than last, and that a tie up between the two subsea engineering firms would give them 24 percent of the market for umbilicals, risers and flowlines. TechnipFMC has about 20 percent of that market, and Italy’s Saipem has 15 percent.

"The train is about to leave the station," Martinsen said.

Subsea 7 has its operational headquarters in London, but is incorporated in Luxembourg and trades on the Norwegian stock exchange, where its share’s rose about 1 percent Monday. The company has 10,500 employees globally.

McDermott, based in Houston, has 11,800 employees worldwide. CB&I, based in the Woodlands, has 26,400.

McDermott’s stock gained 95 cents, of 15.7 percent, to close at $7 a share. CB&I’s stock fell 8 percent from Friday’s close, losing $1.21 to end at $13.38.</s>OSLO (Reuters) - Offshore oil services firm Subsea 7 (SUBC.OL) has made an unsolicited offer for U.S. rival McDermott (MDR.N) for about $2 billion, potentially breaking up the U.S. company’s agreed deal with Chicago Bridge & Iron (CB&I).

Subsea said McDermott’s board had rejected its proposal on April 20 but also said the U.S. company could receive a higher bid if it agreed to talks.

McDermott in December had agreed to buy onshore engineering company CB&I (CBI.N) in an all-stock deal worth $1.86 billion at the time and said this would improve its ability to serve customers worldwide.

Subsea 7 said in a statement on Monday its bid proposal was subject to the termination of McDermott’s pending transaction with CB&I.

The M&A activity follows a tough time for the oil services industry which was hit badly by the fall in oil prices and the spending cuts by major oil companies that followed.

Subsea 7’s biggest shareholder, Norwegian billionaire Kristian Siem, has long called for the industry to consolidate, saying this was the way to cope with oil companies’ cost cuts.

Subsea 7 has offered McDermott $7 per share, either in cash or up to 50 percent in stock, representing a premium of 16 percent over McDermott’s closing share price on Friday of $6.05.

“Subsea 7 will consider increasing its proposed price upon further assessment of McDermott’s business through discussions with McDermott management,” Subsea 7 said.

“Additionally, for any stock consideration, Subsea 7 is open to discussing listing options for the shares of the combined company,” it added.

CB&I and McDermott shareholders are due to vote on their planned deal early next month.

“It’s a very well played offer from the Subsea 7. Timing wise, it gives enough time for McDermott management to consider alternatives before the May 2 vote,” Carnegie analyst Frederik Lunde said.

Subsea 7 said combining the two companies would help them to handle large offshore engineering contracts for the oil industry, known as EPCI projects, with Subsea 7’s strengths in Brazil, the Gulf of Mexico and the North Sea complementing McDermott’s strengths in the Middle East, India and Australia.

Subsea also said the deal offered “highly visible economies of scale and cost synergies”, boosting profitability and competitiveness.

McDermott’s CB&I deal earlier this month got support from Institutional Shareholder Services Inc, an independent proxy advisory firm, which said it would help McDermott diversify geographically and add exposure to U.S. onshore.

Some of McDermott’s shareholders, however, have opposed the deal, citing CB&I’s latest performance.

Subsea 7 shares gained more than 2 percent in early trade on Monday.</s>OSLO (Reuters) - Offshore oil services firm Subsea 7 (SUBC.OL) has offered to buy U.S. peer McDermott (MDR.N) for about $2 billion, it said on Monday, adding that its approach had so far been rejected.

McDermott, which last year agreed to buy onshore-based engineering company Chicago Bridge & Iron (CB&I), could receive an even higher bid if it agrees to enter talks, Subsea 7 added.

“The proposal is subject to the termination of McDermott’s pending transaction with CB&I,” Oslo-listed Subsea 7 said in a statement.

The offer to pay $7 per share, either in cash or up to 50 percent of it in stock, represented a premium of 16 percent over Friday’s closing share price of $6.05.

“Subsea 7 will consider increasing its proposed price upon further assessment of McDermott’s business through discussions with McDermott management,” it said.

“Additionally, for any stock consideration, Subsea 7 is open to discussing listing options for the shares of the combined company,” Subsea 7 wrote.</s>(LPC) - U.S. engineering firm McDermott’s US$2.26bn term loan fell in the secondary loan market on Tuesday after a US$2bn unsolicited bid from offshore oil services firm Subsea 7 threatened to break up McDermott’s agreed bid for onshore engineering firm Chicago Bridge & Iron (CB&I).

McDermott’s term loan finances its planned acquisition of CB&I and will be repaid if the deal falls through. It was quoted at 99-99.5 on Tuesday, down from a 100-100.25 market on Friday before Subsea 7’s bid, sources said.

The loan fell on the news. “We’ve got some sellers,” a loan trader said.

Shareholders of McDermott and CB&I are set to vote on the merger on May 2. Subsea 7 said McDermott’s board had rejected its proposal on April 20, but also said that it could raise its offer.

McDermott’s loan is currently in escrow, pending the outcome of its bid. While that deal would disappear if Subsea 7’s bid succeeds, it would be a credit positive transaction for McDermott, said Michael Corelli, senior credit officer at Moody’s Investors Service.

“It would be a bigger company and somewhat diversified. The credit metrics would be very strong for a B1 rating,” he said. “Subsea definitely seemed interested here. The reason that they went public with this bid was to put it in the mind of McDermott’s shareholders before they vote on the CB&I deal.”

When McDermott’s term loan was syndicated, the discount was widened twice and pricing was also increased after investors pushed back on concerns about CB&I’s negative operating cash flows.

“The biggest concern was the CB&I and the problem projects they’ve had there,” Corelli said. “They had four projects where they had larger than expected cost and charges, and led to them having some significantly negative operating cash flows. The debt investors who made McDermott pay more in interest were concerned about the cash burns and the potential continued losses.”

The term loan was priced at 500bp over Libor with a 1% floor and 98 original issue discount, versus initial guidance of 400bp-425bp over Libor range and a 99.5 discount, Reuters LPC previously reported.

McDermott reported quarterly earnings on Tuesday, beating Thomson Reuters I/B/E/S mean estimate. The company posted first quarter earnings of US$0.17, net income of US$0.17 per share, an increase from last year’s same quarter when the company earned $0.08.

McDermott did not comment beyond confirming it had rejected Subsea 7’s bid.

“Given the attributes of the proposed transaction and our stated ability to further enhance our proposed terms, we encourage the McDermott Board of Directors to reconsider this compelling opportunity to combine two complementary businesses,” Jean Cahuzac, Subsea 7’s chief executive officer, said in a press release.</s>OSLO, April 23 (Reuters) - Offshore oil services firm Subsea 7 has offered to buy U.S. peer McDermott for about $2 billion, it said on Monday, adding that its approach had so far been rejected.

McDermott, which last year agreed to buy onshore-based engineering company Chicago Bridge & Iron (CB&I), could receive an even higher bid if it agrees to enter talks, Subsea 7 added.

"The proposal is subject to the termination of McDermott's pending transaction with CB&I," Oslo-listed Subsea 7 said in a statement. (Reporting by Terje Solsvik, editing by Gwladys Fouche)</s>After reviewing Subsea 7's (OTCPK:SUBCY) unsolicited proposal with its financial advisors and legal counsel, McDermott (NYSE:MDR) has rejected its $7 per share in cash bid, or an offer for up to 50% in Subsea 7 stock and the balance in cash.

The board concluded that the proposal was not in the best interests of the company or its stockholders as it significantly undervalued McDermott.

It was also not an attractive alternative to the proposed combination with CB&I (NYSE:CBI), which is expected to close in May 2018.</s>* PROPOSAL REPRESENTS A PREMIUM OF 16% TO LATEST CLOSING SHARE PRICE OF MCDERMOTT ON APRIL 20

* SUBSEA 7 PROPOSED TO ACQUIRE MCDERMOTT COMMON STOCK FOR USD 7.00 PER SHARE, PAYABLE ENTIRELY IN CASH OR UP TO 50% IN SUBSEA 7 STOCK AND BALANCE IN CASH

* PROPOSAL REPRESENTS A PREMIUM OF 16% TO LATEST CLOSING SHARE PRICE OF MCDERMOTT ON APRIL 20

* ON APRIL 20, 2018, BOARD OF DIRECTORS OF MCDERMOTT REJECTED SUBSEA 7’S PROPOSAL

* WILL CONSIDER INCREASING ITS PROPOSED PRICE UPON FURTHER ASSESSMENT OF MCDERMOTT’S BUSINESS THROUGH DISCUSSIONS WITH MCDERMOTT MANAGEMENT

* ADDITIONALLY, FOR ANY STOCK CONSIDERATION, SUBSEA 7 IS OPEN TO DISCUSSING LISTING OPTIONS FOR SHARES OF COMBINED COMPANY

* PROPOSAL IS SUBJECT TO TERMINATION OF MCDERMOTT’S PENDING TRANSACTION WITH CB&I

* SUBSEA 7’S LETTER TO MCDERMOTT - WILLING TO BE FLEXIBLE WITH RESPECT TO CONSIDERING A MIX OF CASH AND SUBSEA 7 SHARES

* WE SEE SIGNIFICANT MERIT IN SUCH A TRANSACTION FOR ALL SHAREHOLDERS, AND WITH OUR FINANCIAL AND LEGAL ADVISORS CONTINUE TO BE OPEN TO DISCUSSIONS

* PROPOSED TRANSACTION WOULD NOT BE SUBJECT TO ANY FINANCING CONDITIONS OR SUBSEA 7 SHAREHOLDER APPROVAL

* IT WOULD BE SUBJECT TO REGULATORY AND OTHER CUSTOMARY CLOSING CONDITIONS Source text for Eikon: Further company coverage: (Reporting By Terje Solsvik)
Underwater engineering firm Subsea 7 begins negotiations to acquire offshore company McDermott International, offering US$2 billion for it.