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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: BigBull who wrote (48171)	7/19/1999 4:10:00 PM
From: Tomas	Read Replies (2) \| Respond to of 95453

Merger creates world's largest drilling firm - Houston Business Journal, July 19 Ann De Rouffignac Offshore drilling companies have been waiting patiently for months for the first round of mergers to begin consolidating their ranks. And this week, their endurance was rewarded. Transocean Offshore and Sedco Forex Offshore, a unit of Schlumberger, announced a merger that will create the world's biggest drilling contractor. The combination will create a company with a market capitalization of $6 billion, or three times the size of its next largest competitor. "The merger between Sedco Forex and Transocean Offshore has been long awaited and should be a catalyst for additional consolidation within the industry," says Clay Brethour, analyst with Dain Rauscher Wessels in Dallas. The new company will issue $3.2 billion worth of new shares, based on the closing price of Transocean stock the Friday before the transaction was announced. Schlumberger shareholders will get one share of the new company for every five shares of Schlumberger they own. Transocean shareholders will keep their shares. Investors reacted favorably to the merger, sending Transocean's stock up to $29.81 a share -- an increase of 2.8 percent -- on two million shares traded. In fact, the merger announcement stimulated a small rally in the entire offshore drilling group. Without exception, all of the offshore drilling companies stocks gained ground in the wake of expectations that the long needed consolidation was now underway. That consolidation is exactly what the industry needs, says Bob Rose, CEO of Global Marine Inc., another large offshore contract driller. "On balance, it's great for the industry. I'm just sorry somebody else beat me to the punch," Rose says. Global Marine has been publicly calling for more consolidation in the industry and searching for a merger partner of its own. He says the offshore contract drillers have a hard time growing their companies without adding more capacity. That's why consolidation is key. The Transocean merger is expected to generate some cost savings for the new combined company. Officials peg that figure at $25 million a year to be realized a year or two after the merger is complete. Transocean's spokesman Jeffrey Chastain says it's too early to say how many onshore Houston-based personnel might lose their jobs from the merger and would not say how many employees were shore-based. Schlumberger officials said they had been considering strategic alternatives for the company's drilling unit for several years. Though Schlumberger is a strong leader in seismic and specialized drilling technologies and other reservoir optimization techniques, its drilling unit, Sedco Forex, is not that prominent. "Where we can't be a world leader, we team up with someone who is," said Evan Baird, chairman and CEO of Schlumberger, on a conference call. Baird confirmed that Schlumberger instigated the discussions with Transocean in April and was immediately pleased with Transocean's reaction to the company's overtures. The combined company to be called Transocean Sedco Forex, will have 7,500 employees worldwide and a large fleet of 75 mobile units. Twenty-four of those rigs are capable of drilling in waters greater than 3,000 feet. New rigs costing $2.5 billion in total are scheduled to be added to the fleet. The rigs are spread throughout all the major drilling areas of the world. The transaction will give the new company about $1.3 to $1.4 billion of debt, but debt-to-total capitalization remains in the healthy range of only 25 percent. In fact company officials indicate the financial health of the new company would be sufficient to consider other opportunities by the end of the year hinting at further acquisitions. Transocean chairman and CEO J. Michael Talbert will become CEO of the new company, and Victor Grijalva, vice chairman of Schlumberger, will serve as the chairman.