To thread . . . Mavis is at it again, only this time, "just reporting the facts, maam." To Ian -
dittos ;-)
Top Stories: Niche Oil Service Merger
Provides No Boost to Sector
By Mavis Scanlon
Staff Reporter
6/10/98 6:23 PM ET
This time it wasn't one of the usual suspects.
In a surprise announcement, Stolt Comex Seaway
(SCSWF:Nasdaq) said it signed a letter of intent to acquire
Ceanic Corporation (DIVE:Nasdaq) for $222 million in cash, or
$20 per share.
The $20 per share price reflects a premium of 29% over Ceanic's
closing price from June 8. Ceanic jumped 3 1/16, or 19.9%, to 18
1/2 on the news by midday Wednesday. Stolt's stock traded at 29
1/2, down 3/8, or 1.3%.
Unlike other recent deals in the sector, however, the proposed
acquisition of small-cap Ceanic, which in February changed its
name from American Oilfield Divers, has failed to spark buying
in the depressed oil service sector -- in fact, the Oil Service Index
is bleeding, down 3.24 to 94.52 near the close, a level last seen in
late January. Not even the usual takeover or merger candidates
could muster much action in the wake of the merger news. Camco
(CAM:NYSE) fell 3/4 to 62, and Smith International (SII:NYSE)
dropped 1 1/2, or 3.5%, to 42.
To be sure, the combination, which will give Stolt, based in
Mareseille, France, a market capitalization of about $1.8 billion, is
on a much smaller scale -- and in more of a niche segment of the
oilfield service industry -- than any one of the recent marriage
announcements in the sector. The Baker Hughes (BHI:NYSE)
and Western Atlas (WAI:NYSE) deal, announced in early May,
will create a $6.5 billion technologically advanced oil service
company. EVI Weatherford (EVI:NYSE), is now the fourth-largest
oilfield service company; the merger was completed in late May.
And the megadeal that jumpstarted 1998 merger mania in the
patch, Halliburton's (HAL:NYSE) purchase of Dresser
Industries (DI:NYSE), is on schedule for completion in the fourth
quarter.
But the woes of the crude oil market, which have rippled out to oil
company spending and oil rig rental company dayrates, are the
main reason investors are staying away from the oil patch these
days, even as consolidation continues apace.
On Tuesday, crude oil prices fell below $14 per barrel for the first
time since May 19 on a rash of bearish news reports: Both the
International Energy Agency and the U.S. Department of Energy
lowered their predictions for demand growth in the second half of
this year; OPEC's May production figures reflected a change in
the wrong direction -- they increased rather than decreased,
according to a Dow Jones Newswires survey; and inventories for
gasoline grew, showing less demand as the crucial driving season
sets in. At 3:06 p.m. EDT Wednesday, crude futures for July
delivery were down 30 cents to $13.55 per barrel.
Traders say with the $14 floor of support for crude gone, the
market may be on its way to test the low of $12.80 per barrel we
saw before OPEC's March Riyadh Pact to cut production.
"The way the commodity price is right now, everyone is just
scared to touch these stocks," says Robert Muse, an analyst at
Simmons & Co. who follows Stolt Comex. (Simmons, a Houston
investment bank which does not rate stocks, has performed
underwriting for Stolt Comex.)
The drop in oil prices and the stocks which track the commodity
underscores the dichotomy enveloping the oil service industry
and its investors, says Jim Wicklund, who follows follows Ceanic
at Dain Rauscher Wessels in Dallas and rates it a strong buy.
(Dain Rauscher has performed underwriting for Ceanic.)
Oil service companies have years of strong business opportunity
ahead of them, especially in deepwater development, says
Wicklund. But right now, investors are paying attention only to
the commodity price, he says, keeping share prices and
valuations low. The low valuations benefit companies in an
acquisition mode, he says.
Stolt and Ceanic fit together strategically, says Muse at Simmons,
and since Stolt had been signaling its intention to solidify its
presence in the Gulf of Mexico, the offer was not so much of a
surprise to him.
What surprised Wicklund at Dain Rauscher was that the offer
was in cash rather than stock, and that it came so soon after
Ceanic named a new CEO. Kevin Peterson, who came to Ceanic a
year ago as COO from competitor Coflexip Stena Offshore, was
named CEO and president in early May.
Some thought the price was a little low, Wicklund added. Ceanic
is among the companies whose earnings estimates have not come
down over the last six months of low commodity prices, Wicklund
says. Its business -- mainly underwater construction of oil
industry infrastructure and diving services -- has remained
strong. First Call consensus estimates for Ceanic, which stood at
$1.03 in January, dipped a few cents in March but now stand at
$1.02 for the year.
In addition to subsea construction services, the company, which
recently sold off its headquarters in Lafeyette, La., and moved to
Houston, provides maintenance, installation, repair and support
services for drilling operations. Customers include not only oil
and gas companies, but other offshore construction and
engineering companies.
Ceanic says it is the largest provider of diving services in the Gulf
of Mexico, with about 550 divers and 21 diving support vessels.
(Sixteen of its diving vessels operate in the Gulf.) It has also
expanded its fleet of "remotely operated vehicles," or ROVs,
which service the deepwater market, and expects to have 12 of the
vehicles in use by the end of 1998.
In a show of confidence in Ceanic's deepwater technological
prowess, Shell awarded it a contract in February to design, build,
test and operate a deepwater pipeline system. |
