Transocean to Acquire GlobalSantaFe for $17 Billion (Update3)

Transocean Inc. agreed to buy GlobalSantaFe Corp. for about $17 billion, combining the world's two largest offshore oil and gas drillers.

The new company will be triple the size of its largest peer by sales, Noble Corp., with 146 rigs and an order backlog of $33 billion. Transocean and GlobalSantaFe, both based in Houston, called the transaction a merger in a statement, with shareholders on neither side getting a premium for their stock.

Transocean's Robert Long, who will remain chief executive officer, said the deal will create a company offering a full range of drilling to customers worldwide. Rig rates are surging as producers push their search for reserves to deeper waters. Rents for deepwater rigs rose 13 percent from a year earlier to a June average of $494,957 a day, ODS-Petrodata Inc. reported.

``It's a hot sector, these stocks are going straight up,'' said Philip Maywah, an analyst at Alexander Alternative Capital in Miami, whose hedge fund holds Transocean shares. ``I'm very, very happy. I just wish I had more.''

Shares of Transocean rose $6.20, or 5.6 percent, to $116.17 at 9:57 a.m. in New York Stock Exchange composite trading. GlobalSantaFe climbed $4.28, or 5.7 percent, to $79.02. Before today, the stocks had jumped 36 percent and 27 percent, respectively, this year.

Shareholders of the companies will receive a combined $15 billion in cash, Transocean and GlobalSantaFe said today in their statement.

$53 Billion

Transocean stockholders will receive $33.03 in cash and 0.6996 share of the combined company for each of their shares. GlobalSantaFe owners will get $22.46 in cash and 0.4757 share. The company will have an enterprise value, or market value plus net debt, of about $53 billion.

The $33 billion order backlog is for drilling contracts extending as far out as 2015.

``It monetized some of that giant backlog that's out there,'' Roger Read, an analyst at Natexis Bleichroeder in Houston, said of the merger agreement.

The company, to be named Transocean and governed by an equal number of board members from both sides, will have five deepwater rigs under construction. The transaction will yield annual cost savings of $100 million to $150 million by 2010, the companies said.

``It will put increasing pressure on other companies in the industry to do the same thing,'' said Michael Drickamer, an analyst at Morgan Keegan & Co. in Memphis, Tennessee, who rates shares of Transocean and GlobalSantaFe at ``outperform'' and doesn't own stock in either.

Cash Payouts

Because the drillers were earning money faster than they could reinvest it wisely, giving cash to shareholders through the deal makes sense, Drickamer said.

The combined company will own 29 rigs capable of drilling in water depths of more than 5,000 feet, according to Jud Bailey, an analyst at Jefferies & Co. There are currently about 70 such rigs in the world, with nearly that many under construction.

Bailey, who rates Transocean at ``hold'' and GlobalSantaFe at ``buy,'' said he was ``shocked'' by the takeover. Transocean was ``the dominant player in the deepwater market, but at 60 new deepwater rigs being built, and they only had four of them, they were going to lose market share over the next five years,'' he said. ``That's what compelled this.''

GlobalSantaFe's CEO, Jon Marshall, will be president of the combined company. The transaction is scheduled to close by the end of this year, pending approval by shareholders.

Competitive Markets

Bailey and other analysts said combining the two largest offshore drillers won't raise monopoly concerns because the business is too global and competitive for any one contractor to have a stranglehold on any particular market.

Goldman, Sachs & Co. is advising Transocean on the transaction, and Lehman Brothers Inc. is adviser for GlobalSantaFe. Affiliates of the two firms also will arrange financing of the $15 billion in payouts to shareholders.

The payouts should prompt other drillers to return money to shareholders through dividends or stock buybacks,'' said Maxime Carmignac, who counts shares of Transocean and GlobalSantaFe Corp. among the 12 billion euros ($16.6 billion) in assets she helps oversee at Carmignac Gestion in Paris.

``These companies have been sitting on huge amounts of cash but have not been returning cash to shareholders,'' she said.

To contact the reporter on this story: Amy Strahan in Houston at astrahan@bloomberg.net .