Is Ensco Still Committed to ATW Acquisition despite Price Drops?

On May 30, 2017, Ensco (ESV) announced its plan to acquire Atwood Oceanics (ATW) in an all-stock transaction. During its second quarter earnings conference call, Ensco gave updates on this acquisition.

In June, Ensco received US antitrust regulatory clearance for the acquisition, and the integration teams are planning for a smooth transition. The company is working with the SEC to respond to the comments of merger proxy. If the transaction is approved at the Atwood shareholder meeting, the acquisition will likely be closed later this quarter.

Oil prices have fallen significantly since the acquisition announcement. In spite of the drop in oil prices, Ensco stated it remains committed to the transaction for several reasons. The acquisition would enhance Ensco’s floater drilling capabilities and refresh its jack-up fleet. Atwood has four best-in-class drillships, and Ensco believes these rigs will secure work first once the market conditions improve. Atwood’s semi-submersibles have established themselves by delivering high levels of performance to customers.

Ensco also expects to have significant cost synergies from this acquisition. The company expects $45 million of synergies in 2018 and $65 million in 2019 onwards. The transaction creates more than $400 million of present value at a 10% discount rate, according to Ensco.