Ensco plc to acquire Atwood Oceanics

Offshore drillers Ensco plc (NYSE: ESV) and Atwood Oceanics Inc. (NYSE: ATW) have entered into a definitive merger agreement under which Ensco will acquire Atwood in an all-stock transaction. The definitive merger agreement was unanimously approved by each company’s board of directors.

Under the terms of the merger agreement, Atwood shareholders will receive 1.60 shares of Ensco for each share of Atwood common stock for a total value of $10.72 per Atwood share based on Ensco’s closing share price of $6.70 on 26 May 2017. This represents a premium of approximately 33% to Atwood’s closing price on the same date. Upon close of the transaction, Ensco and Atwood shareholders will own approximately 69% and 31%, respectively, of the outstanding shares of Ensco plc. There are no financing conditions for this transaction.

Ensco expects to realize annual pre-tax expense synergies of approximately $65 million for full year 2019 and beyond. The combination is expected to be accretive on a discounted cash flow basis.

Upon closing, Ensco will add six ultra-deepwater floaters and five high-specification jackups. The combined company will have a fleet of 63 rigs, comprised of ultra-deepwater drillships, deep- and mid-water semisubmersibles and shallow-water jackups, along with a customer base of 27 national oil companies, supermajors, and independents with contracts spanning six continents.

Within the combined fleet of 26 floating rigs (semisubmersibles and drillships) are 21 ultra-deepwater drilling rigs, capable of drilling in water depths of 7,500′ or greater, with an average age of five years.

The jackup fleet will be the largest in the world, composed of 37 rigs, including 27 premium units.

Ensco’s executive management will continue with Carl Trowell as president and CEO, Carey Lowe as executive vice president and COO, and Jon Baksht as senior vice president and CFO.

Ensco plc’s chairman will continue to be Paul Rowsey and the board of directors will include Carl Trowell, plus two members from Atwood’s current board effective at closing.

Ensco will continue to be domiciled in the UK and senior executive officers will be located in London and Houston. Ensco plc shares will continue to trade on the New York Stock Exchange under the symbol “ESV”.

Financial highlights
Annual expense savings of $65 million are estimated to be realized in full year 2019 and beyond, and 2018 cost synergies are projected to be more than $45 million. Expense savings are anticipated from the consolidation of offices that include corporate staff departments and shore-based operations in overlapping markets, as well as the standardization of systems, policies and procedures across the organization.

Based on the anticipated annual savings, the planned combination is expected to be accretive to projected discounted cash flows.

The balance sheet of the combined company will remain strong. Adjusted for the expected retirement of Atwood’s outstanding revolving credit facility with cash and short-term investments on hand, total available liquidity was $3.9 billion on 31 March 2017 and included $1.6 billion of cash and short-term investments.

The estimated enterprise value of the combined company is $6.9 billion, based on the closing price of each company’s shares on 26 May 2017. The combined company will have approximately $3.7 billion in revenue backlog.

The transaction is subject to approval by the shareholders of Ensco and Atwood, as well as other customary closing conditions. The companies anticipate that the transaction could close as soon as calendar third quarter 2017.

Morgan Stanley & Co. LLC is lead financial advisor to Ensco. DNB Markets, part of DNB Bank ASA and HSBC Securities (USA) Inc. also provided financial advice to Ensco. Ensco’s legal advisor is Latham Watkins LLP. The financial advisor for Atwood is Goldman Sachs & Co. LLC and its legal advisor is Gibson, Dunn & Crutcher LLP.

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