McDermott-CB&I merger challenged by shareholder

With shareholder meetings set to decide on the proposed McDermott-CB&I merger fast approaching, McDermott has once again urged its shareholders to vote “FOR” the proposal amid objections by one company which owns nearly 2% of McDermott. 

Hotchkis & Wiley, an asset-management firm specializing in long-only value investing whose clients own nearly 2% of McDermott, on Thursday sent a letter to McDermott chairman, Gary Luquette, regarding the company’s merger with CB&I.

In the letter, Hotchkis & Wiley said it supports David Dickson’s management team but does not support the CB&I transaction as currently structured.

“McDermott’s deal for CB&I was tolerable with the facts available at the time, but the situation has worsened materially since the deal was made. CB&I announced troubling results that increase our worry that the business will take longer to fix. The higher risk is also lowering the upside, as the crisis at CB&I is driving the bond market to price McDermott’s unsecured notes to finance the deal at over 10%,” Hotchkis & Wiley further said in the letter.

“With higher risk and less upside, the transaction as currently structured is materially less attractive than what management negotiated,” Hotchkis & Wiley added.

In conclusion, the company said it plans to vote against the transaction as currently structured.

In response to Hotchkis & Wiley’s objections, McDermott said on Thursday it believes the merger valued at $6 billion is in the best interest of McDermott and its stockholders.

“The combination creates a company that spans the entire value chain from concept to commissioning, and is expected to deliver compelling value, make the combined business more competitive and enable a more consistent, predictable performance through market cycles,” McDermott said.

McDermott also noted that the companies have received all necessary regulatory approvals and are in a position to complete the requisite financing.

The combination is expected to close in the second quarter of 2018 but it remains subject to customary conditions, including approval by McDermott’s and CB&I’s stockholders and other closing conditions.

McDermott’s special meeting of stockholders is scheduled to be held on May 2, 2018. CB&I’s meeting of shareholders is scheduled to be held on the same date as McDermott’s.

Offshore Energy Today Staff