Analyzing Ensco’s Acquisition of Atwood




Last week Ensco (ESV) announced its decision to acquire Atwood Oceanics (ATW) in an all-equity transaction. In the previous part of this series, we saw this news boosted ATW’s stock price, and the stock was the best performer of the week compared to Seadrill (SDRL), Transocean (RIG), Noble (NE), and Rowan Companies (RDC).

According to the agreement, Atwood Oceanics’ shareholders will receive 1.6 shares of Ensco for each share of ATW stock. This represented a premium of 33% to ATW’s share price on May 30, 2017.

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Combined company

After the close of this transaction, Ensco will add six ultra-deepwater floaters and five high specification jack-ups. The combined company’s fleet will consist of 63 rigs, which will include ultra-deepwater drillships, deep and mid-water semisubmersibles, and jack-ups. The combined company’s customer base will now include 27 oil companies. Atwood Oceanics had a comparatively young fleet. The combined company’s average fleet age will be five years, one of the youngest in the industry.

Also, the combined company will have a diverse geographical base with drilling (OIH) contracts in almost every major basin around the world: Gulf of Mexico, Brazil, North Sea, Mediterranean, Asia Pacific, and West Africa.

Ensco’s management won’t change, and the company will continue to trade on the New York Stock Exchange under the same ticker, ESV.

The combined company will have a backlog of $3.7 billion. Atwood Oceanics had a comparatively weak backlog of $400 million while Ensco’s backlog is around $3.3 million.

The combined company will benefit from cost synergies, and the expected cost savings for 2018 and 2019 are $45 million and $65 million, respectively.

Analysts gave varying reactions to this merger, which we’ll discuss in more detail in the next part of this series.


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