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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Archie Meeties who wrote (3957)	9/4/2001 5:16:10 PM
From: excardog	Read Replies (1) \| Respond to of 206326

Ricks bullish take on the SDC GLM merger. My humble opinion is SDC stole GLM in this merger of equals so to speak. Santa Fe and Global Marine To Merge by Rick Olivere, CFA 2:00:00 PM September 04, 2001 GMT Santa Fe International [SDC: NYSE] and Global Marine [GLM: NYSE] on Tuesday announced that they have entered into a definitive agreement to merge in a stock swap transaction with an estimated market value of $3bn, plus the assumption of $900m of debt. The combined entity, Global Santa Fe, will trade on the NYSE with the ticker symbol GSF and have an estimated market value of $6bn, as compared with an estimated $9bn for Transocean Sedco [RIG: NYSE]. Owning and operating a fleet of 103 offshore and land rigs, the new company will be well-positioned to provide all types of rigs in all major geographic drilling markets by combining the market position of GLM in the Gulf of Mexico and West Africa with the SDC rig fleet in the Middle East and Asia. The newly formed GSF is also well-positioned to work with the recently merged super major oil companies, such as ExxonMobil [XOM:NYSE] and BP [BP:NYSE], who are seeking contract drilling services from diversified fleet operators capable of providing rigs for drilling programs around the world. We reiterate our purchase recommendation of Santa Fe, with a price target of $82. Management expects the transaction to be modestly accretive to the combined company's earnings and substantially accretive to cash flow in 2002. In the conference call with investors and analysts, Bob Rose, Chairman of Global Marine, said that based on inquires for rigs for drilling plans in Q4:01 in the Gulf of Mexico (GOM), he believes that dayrates had "bottomed" in the GOM and that activity would improve by year-end, with natural gas prices of $2.50 per million cubic feet (mcf). In response to a question about another drilling company idling a jackup rig in the North Sea, Sted Garber, President of SDC, stated on the conference call with investors and analysts that current fixtures in the North Sea have been at higher rates for term contracts. For the 12 months ended June 30, GLM and SDC combined had approximately $2bn in revenues and approximately $650m in EBITDA. The combined company has pro forma book value of $4.5bn, debt of $900m, and cash of $600m. Management estimates debt to pro forma total capitalization at less than 18%. We believe this strong balance sheet is likely to allow the combined company to consider additional acquisitions or rig purchases following the integration of the two entities. Management noted in its conference call that the combined entity can fund its planned capital expenditures for new build rigs, maintenance and upgrades with cash and cash flow, without future debt market financings. Under the terms of the transaction, GLM shareholders will receive a fixed ratio of 0.665 shares of newly issued GSF stock for each share of GLM, and will own approximately 50.6% of the combined company. Based on closing prices of $14.40 for GLM and $25.30 for SDC on August 31, this translates to a 17% premium for GLM shareholders. The transaction will be taxable to GLM shareholders, but not to SDC shareholders, who will retain their existing shares and own approximately 49.4% of the combined company. GSF will have approximately 233m shares outstanding. The transaction is expected to close by year-end 2001 and is subject to shareholder and regulatory approvals, such as Hart-Scott-Rodino antitrust process. Kuwait Petroleum Corporation (KPC), which owns approximately 37.7% of SDC, has approved the terms of the merger and has entered into a shareholder agreement in support of the transaction. KPC will continue to own approximately 43.5m shares, or 18.7% of the pro forma shares outstanding of the newly created company. With marketing and operating personnel in each of the major drilling markets, the combined company will be well positioned to move rigs from one market to another to more properly match drilling programs. Management noted that the combined entity is a strategic match, since SDC does not operate in the Gulf of Mexico or West Africa, while GLM does not currently operate in Asia or the Middle East. Also noted on the conference call is the fit of the rig fleets, with SDC operating heavy-duty harsh environment rigs and GLM operating deepwater rigs. We believe Sted Garber, Santa Fe President and CEO, illustrates this in his statement that, "Shareholders will benefit from owning a company with enhanced operational scale and expertise and one of the industry's youngest, most technologically advance drilling fleets. Our state-of-the art deepwater drilling fleet, along with the largest heavy duty harsh environment and premium jackup fleets, will enable us to meet the increasing demands of our diverse customer base..." Bob Rose, Chairman, President and CEO of Global Marine, will serve as Chairman of the combined company. Mr. Garber will serve as President and CEO of GSF, the same positions he holds at SDC. We do not have a fundamental rating on GLM shares.