Ensco, Rowan agree on amended merger bid

Offshore drilling companies Ensco and Rowan have amended the terms of the previously proposed merger, with Rowan board accepting Ensco’s improved offer for the all-stock merger.

Ensco 72; Image by SP Mac/Flickr – under permission from the photographer

Under the amended agreement, Rowan shareholders will receive 2.750 shares of Ensco for each share of Rowan they own. All other terms and conditions of the agreement entered into on October 7, 2018, remain the same.

Ensco and Rowan issued separate statements on Tuesday saying that the amendment was unanimously approved by each company’s board of directors.

Upon closing, Ensco and Rowan shareholders will own approximately 55% and 45%, respectively, of the outstanding shares of the combined company.

This latest amendment is an even higher offer than the “final proposal” which Ensco offered to Rowan in mid-January. The offer entailed an exchange rate of 2.600 Ensco shares for each Rowan share.

All other terms and conditions of the transaction agreement that Ensco and Rowan entered into on October 7, 2018, remain the same.

Related: Ensco and Rowan merger to create world’s biggest offshore drilling company by fleet size

Ensco said on Tuesday that, following months of integration planning, Ensco and Rowan would expect to realize annual pre-tax expense synergies of approximately $165 million, which represents a 10% increase from the annual pre-tax expense synergies contemplated at the time of the announcement of the transaction in October 2018.

Further, more than 75% of targeted synergies are expected to be realized within one year of closing. Ensco said in the statement that the transaction would most likely close during the first half of 2019.

Ensco president and CEO, Carl Trowell, said: “By reaching an amended agreement, Ensco and Rowan shareholders will benefit from anticipated expense synergies that are expected to create approximately $1.1 billion of capitalized value. Furthermore, a larger, more technologically-advanced and diverse offshore driller will provide shareholders of both companies with even greater upside as the industry recovery unfolds […].

“In addition to a broad fleet of high-specification floaters and jack-ups, the combined company will have a diverse customer base that includes most of the largest holders of offshore reserves and the broadest geographic presence of any offshore driller.”

Rowan: No better deal

Rowan on Tuesday said: “We are pleased to have reached an amended agreement with Ensco at an exchange ratio of 2.750, which represents a 24.2% increase compared to the 2.215 exchange rate in the previously announced agreement between the companies. The Rowan Board and management team actively negotiated with Ensco to receive the significantly improved exchange ratio and, after careful review and consideration, the Board determined that the transaction continues to maximize value for all Rowan shareholders and represents the best path forward for the Company.”

“Rowan team has worked with the Ensco team over the last several months to begin planning for the integration and realization of synergy opportunities, our conviction regarding the value creation opportunity has only grown stronger.”

“The Rowan Board and management team have acted decisively to position our company for long-term growth and success. As part
of these efforts, Rowan’s Board has undertaken a multi-year review, in consultation with its outside financial and legal advisors, of strategic alternatives including asset sales, internal restructurings, joint ventures and other business combinations.

“During this extensive review process, the Rowan Board evaluated a combination with Ensco and determined that no other alternatives were sufficiently compelling for Rowan shareholders, and unanimously approved a definitive transaction agreement to combine with Ensco in October 2018. As the Rowan team has worked with the Ensco team over the last several months to begin planning for the integration and realization of synergy opportunities, our conviction regarding the value creation opportunity has only grown stronger.”

In its statement Ensco said that the combined company’s balance sheet was expected to have liquidity of $3.7 billion, including $1.7 billion of cash and short-term investments, providing the pro forma entity with the financial flexibility to continue investing in the fleet and innovations aimed at improving drilling efficiencies. The combined company’s total contracted revenue backlog would be approximately $2.6 billion.

Related: Ensco postpones general meeting as Rowan evaluates new bid

Ensco expects the reconvened general meeting to occur during the week of February 18, 2019, and will announce the place, date, and time of the meeting to approve resolutions relating to the transaction with Rowan.

Votes of Ensco shareholders previously submitted in favor of (or against) the Ensco shareholder resolutions proposed in connection with the original transaction will not be counted in respect of the transaction.

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