Ensco plc (ESV) announced that it will acquire Pride International (PDE) in a cash and stock deal valued at $7.3 billion. This move will make Ensco the world’s second-largest offshore oil and gas driller behind Transocean Inc. (RIG) with significant presence in lucrative deepwater markets off Brazil and West Africa.
Per the agreement, Ensco will buy Pride for $41.60 per share, which is at a 21% premium to Pride’s closing share price as on February 4, 2011. Pride stockholders will receive 0.4778 newly issued Ensco shares plus $15.60 in cash for each share of the Pride common stock. Upon closure, Pride shareholders will own about 38% of Ensco.
The board of directors of both companies approved the proposed transaction, which is expected to close in the second quarter of 2011. However, the deal is pending shareholders’ approval and other customary closing conditions.
Houston, Texas-based Pride is a leading offshore contract driller with operations in many of the active oil and natural gas basins of the world, including South America, the Gulf of Mexico (GoM), West Africa, the Mediterranean Sea, the Middle East, and Asia Pacific. On the other hand, London-based Ensco is the chief supplier of rigs in the North Sea, Southeast Asia, North America and the Middle East.
The combined company, worth $16 billion, is expected to possess 74 rigs in total, comprising 21 ultra-deepwater and deepwater platforms, in the fastest growing markets of the word including Brazil and West Africa. We believe the combined entity will create a significant offshore drilling competitor globally securing a premium valuation with high-quality assets.
Though GoM spill-related glitches remain, deepwater is a compelling growth industry. We believe that Ensco will also have a competitive advantage in the design of its newbuild deepwater rigs. Given deepwater fundamentals and significant visibility for continued day rate improvement, the deal will boost Ensco’s revenue backlog to $10 billion.
We currently maintain our long-term Neutral recommendation for Ensco shares.
ENSCO PLC (ESV): Free Stock Analysis Report
PRIDE INTL INC (PDE): Free Stock Analysis Report
TRANSOCEAN LTD (RIG): Free Stock Analysis Report
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