Rowan Companies, Inc. (RDC) wrapped up the asset sale deal with a leading mining equipment maker, Joy Global Inc. (JOYG) for its manufacturing unit, LeTourneau Technologies, Inc. The all-cash transaction worth $1.1 billion is subject to adjustment mentioned in the Stock Purchase Agreement dated May 13, 2011.
LeTourneau is a major manufacturer of drilling equipment for large land and offshore rigs and specialty steel products. It makes large wheel loaders for surface mining along with designing and construction of jackup rigs and shallow-water drilling vessels. The unit generated $815 million in revenue in the last financial year, with $556 million coming from its drilling products business and $259 million from mining.
The divestiture of LeTourneau brings two comprehensive business platforms to Joy Global. The first, LeTourneau’s wheel loaders, is the largest and the leading fuel efficient unit in the industry. The implementation of wheel loaders to electric mining shovels is expected to bring significant synergies.
The second one is LeTourneau’s leading brand position in hydrocarbon drilling rig equipment and design, which is expected to further benefit from a high market demand for higher specification rigs. Thus, the LeTourneau acquisition adds a wide range of oil and gas drilling products to Joy Global’s product lines.
On the other hand, Houston, Texas-based contract drilling and aviation service provider, Rowan, earlier expressed its intention to utilize the after-tax proceeds from the sale, estimated at approximately $875 million, to increase its high-spec jackup fleet or expand into the ultra-deepwater drilling business.
The LeTourneau divestiture is a part of Rowan’s strategy to dissolve its non-core business from its portfolio. The company was in constant endeavors to offload the division since three years.
We believe this move will enable Rowan to monetize its non-core assets at a highly attractive price and transform itself into a pure-play offshore driller. While the majority of Rowan’s fleet is considered to be high-end premium jackups, the company is also a proven offshore driller, with a long-term strategy in place.
Rowan currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
