How Analysts View Ensco’s Acquisition of Atwood Oceanics
In the previous part of this series, we saw why Ensco’s management is urging investors to vote for Atwood Oceanics’ (ATW) acquisition. In this part, we’ll see what analysts recommend for the company.
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On September 25, UBS raised Ensco (ESV) from “neutral” to “buy.” It also raised the target price to $8 from $6. On September 28, Jefferies raised the target price for Ensco to $6 and maintained a “hold” rating.
Reaction to the acquisition
When Ensco announced its plan to acquire Atwood Oceanics, analysts reacted differently to this decision. According to a Barclays analyst, Ensco’s acquisition of Atwood Oceanics makes sense only if the offshore drilling (XLE) industry recovers quickly. Also, the analyst believes the cost savings from this deal would be offset by the premium paid on the assets.
For Ensco to gain 10% on the assets acquired, the floater day rates need to average ~$320,000 per day. According to Barclays, this day rate level is not within reach until at least 2021. Barclays raised the target price for Atwood Oceanics to $10 from $7.
Moody’s has placed Ensco’s debt rating under review for a downgrade after the company announced its acquisition of Atwood Oceanics. According to Moody’s, Ensco would benefit from the addition of rigs and cost synergies. However, it would have to address Atwood Oceanics’ $1.3 billion balance sheet and $249 million toward shipyard payments.
Just before Ensco announced its acquisition plans, Goldman Sachs had upgraded Atwood Oceanics stock to “neutral” from “sell.”