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How Analysts Reacted to Ensco’s Acquisition

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Nov. 20 2020, Updated 12:13 p.m. ET

Ensco-Atwood merger

Analysts had mixed reactions to the offshore drilling industry’s first merger since the downturn started. In this article, we’ll see what changes the Ensco-Atwood merger has prompted.

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Barclay’s reaction

According to Barclay’s analyst J. David Anderson, Ensco’s (ESV) acquisition of Atwood Oceanics makes sense only if the offshore drilling industry recovers quickly. According to the analyst, the cost savings from this deal will be offset by the premium paid on the assets. Further, for Ensco to gain 10% on the assets acquired, the floater day rates need to average around about $320,000 per day. Barclays thinks 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 reaction

Moody’s has placed Ensco’s debt rating under review for downgrade after the company announced its acquisition of Atwood Oceanics. According to Moody’s analyst Sajjad Alam, Ensco will benefit from the addition of rigs and cost synergies, but it also has to address ATW’s $1.3 billion balance sheet and $249 million towards shipyard payments in a weak offshore drilling market.

On the other hand, Moody’s is reviewing Atwood Oceanics for an upgrade. Also, S&P placed Atwood Oceanics on credit watch “positive” from “negative.”

Goldman Sachs

Before the acquisition announcement, in May 2017, Goldman Sachs upgraded Atwood Oceanics stock to “neutral” from “sell.” Goldman Sachs analysts Waqar Sayed and Viswa Sandeep Sama think that there’s better visibility into re-contracting prospects for Atwood Oceanics’ deepwater rigs. The company is viewed as an attractive merger and acquisition target.

To know more about recent upgrades and analysts’ revisions on Noble (NE), Transocean (RIG), Rowan Companies (RDC), and Diamond Offshore (DO), read Market Realist’s series Offshore Drilling Industry: Where’s the Industry Heading?

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