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Ensco Urges Shareholders to Approve Atwood Oceanics Acquisition

PART:
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Part 3
Ensco Urges Shareholders to Approve Atwood Oceanics Acquisition PART 3 OF 4

Ensco: Acquisition Could Provide Strong Liquidity, Financial Flexibility

Article focus

In the previous part of this series, we touched on a few points why Ensco (ESV) believes acquiring Atwood Oceanics (ATW) is in the best interest of the company and its shareholders. In this article, we’ll explore a few more points.

Ensco: Acquisition Could Provide Strong Liquidity, Financial Flexibility

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Strong liquidity position and financial flexibility 

Ensco believes the combination preserves the company’s financial strength and balance sheet with a pro forma liquidity position of $3.3 billion as of June 30, 2017. The company would also have the financial flexibility to continue investing counter-cyclically to increase long-term shareholder value. The combined company’s liquidity is approximately in line with the recent average for standalone Ensco.

Synergies 

Ensco expects to realize $60 million of cost synergies in 2018 and run rate cost synergies of $80 million on an annual basis beginning in 2019. The acquisition is estimated to create more than $585 million of present value at a 10% discount rate.

Upside

According to Ensco, under various recovery scenarios, Atwood Oceanics’ six floaters are expected to generate EBITDA1 of ~$400 million–$500 million per year.

Ownership

With a 69% ownership stake, Ensco shareholders would participate in near-term and long-term benefits of the combined company.

Peers

Mergers among offshore drillers (OIH) raise hope that consolidation would bring relief to the struggling industry. In August, Transocean (RIG) announced its agreement to acquire Songa Offshore. 

During its 2Q17 earnings conference, Diamond Offshore stated that it is evaluating opportunities to acquire assets or companies. However, DO feels the deal economics don’t work for it at current prices. Noble Corporation (NE) also feels that it is too soon to consider acquisitions.

  1. earnings before interest, tax, depreciation, and amortization
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