John Fredriksen firm takes interest in Valaris
Norwegian billionaire John Fredriksen’s Seatankers Group has acquired an interest in Seadrill’s rival offshore drilling contractor Valaris.
Namely, Famatown Finance, a company indirectly controlled by trusts settled by John Fredriksen and a member of the Seatankers Group, has accumulated through open market transactions approximately 5 per cent of the common shares of Valaris.
Famatown pointed out that the beneficiaries of the trusts are members of Fredriksen’s family and Fredriksen is neither a beneficiary nor a trustee of either trust. Therefore, Fredriksen has no economic interest in the shares and he disclaims any control over these shares.
Further to that, Valaris has entered into a support agreement with Famatown, granting board observer rights to a Famatown designee upon the satisfaction of certain conditions specified in the support agreement. The support agreement also provides Famatown with the potential to designate a member of the Valaris board should Famatown increase its ownership of the company shares in an amount that the board deems sufficient.
Anton Dibowitz, who has just transferred from an interim to a permanent role of Valaris President and Chief Executive Officer, commented: “Valaris welcomes the interest and investment from The Seatankers Group, who have extensive offshore drilling knowledge and experience. We appreciate the confidence expressed in the Valaris management team and board of directors, and the recognition of Valaris’ compelling value proposition.”
It is worth reminding that, before joining Valaris, Dibowitz served as an advisor of Seadrill from November 2020 until March 2021, and as Seadrill’s CEO from July 2017 until October 2020 while Fredriksen is the former chairman of Seadrill.
Seadrill is currently under Chapter 11 bankruptcy protection, its second in about four years, expecting to emerge early in 2022. Recently, a new, independent, seven-member board of directors was elected to assume leadership of the new parent company of the Seadrill group upon emergence from Chapter 11, which will be in the hands of the creditors.
According to Valaris, the Seatankers Group has expressed its determination to be its long-term shareholder. The Seatankers Group holds significant interests within industries such as shipping and energy, oil services, and diversified industrials. These investments include a strategic ownership position in 14 publicly listed companies, of which five are U.S. listed with a combined enterprise value of approximately $45 billion.
Following several years of headwinds, the Seatankers Group now believes the offshore drilling industry is in the early stages of an exciting recovery, driven by industry consolidation and a growing recognition of a need for sustained drilling activity to facilitate an orderly energy transition over time. This inflexion point, which is seeing utilisation and day rates rapidly recovering, coincides with low asset values across the offshore drilling sector, the company said.
The Seatankers Group also believes continued industry consolidation is critical and that Valaris will be an industry leader in the years to come, and that it represents by far the most compelling value proposition for investors in what is an increasingly attractive industry. The most recent market consolidation move came in November 2021 as offshore rig owners Noble Corporation and Maersk Drilling announced their plans to merge in a primarily all-stock transaction much to the dissatisfaction of some of Noble’s shareholders.
Explaining the rationale behind the investment, Famatown pointed out that Valaris has traded at a discount on implied rig values relative to its major peers since its emergence. The Seatankers Group is supportive of the progress that has been made in closing this gap and believes that significant upside still remains in this regard. Additionally, the current enterprise value of Valaris is a fraction of the enterprise value pre-pandemic levels and could represent further material upside should an accelerated market recovery occur.
Furthermore, Valaris has been highly successful lately in securing additional backlog, which is accretive compared to its current valuation. Further, Valaris’ remaining idle drilling units are well-positioned to win accretive contracts in the near term, Famatown said.
Also, the Seatankers Group believes the market substantially underestimates the strategic and financial value of Valaris’ ARO joint venture with Saudi Aramco.
Finally, in its assessment of Valaris, the Seatankers Group has recognized the significant earnings potential of its fleet. With continued best in class execution and general market recovery, the Seatankers Group believes Valaris could be in a position to generate annual EBITDA in excess of $1 billion in the future.
With decades of experience and a network in the offshore drilling industry, the Seatankers Group is confident it can be helpful in accelerating Valaris along the attractive trajectory it is already on. The Seatankers Group also emphasised it has confidence in the management team and board of directors and is very excited about the prospects of increased involvement through potential board representation should Famatown acquire additional shares in an amount the Valaris board deems sufficient.