Rowan Cos. of Houston and Ensco of London announced they would merge on Monday in an all-stock deal with an enterprise value of $12 billion, creating the largest offshore driller in the industry.
The transaction values Rowan at $18.78 per share, or $2.38 billion, giving its shareholders no premium over the stock’s closing price on Friday. Rowan shareholders will get 2.215 of an Ensco share for each of their shares.
Texas lawyers at two different firms played advisory roles on the deal.
Gibson, Dunn & Crutcher counseled Ensco led by corporate partner Tull Florey, who has done M&A work for the company in the past, and corporate associates Lindsay Ellis and Melissa Pick.
Others on the team were finance partner Shalla Prichard and tax partner David Sinak and attorneys in the firm’s Washington, D.C. and Century City, Calif., offices. Slaughter and May was Ensco’s U.K. counsel.
Ensco’s in-house team included general counsel Michael McGuinty in London as well as senior legal counsel Davor Vukadin in Houston.
Kirkland & Ellis advised Rowan, including recently hired corporate partner Sean Wheeler, who previously was at Latham & Watkins. Wheeler has worked with Rowan and Ensco before on deals.
Others on the team were corporate partners Doug Bacon and Ryan Gorsche and corporate associates Camille Walker, Adam Garmezy, Levi Stoneking and Tyler Dunphy along with lawyers in the firm’s London, New York and Chicago offices.
Specialists on the team included tax partners David Wheat and Lane Morgan.
Latham also advised Rowan, but none of the team is based in Texas.
Mark Mai is Rowan’s general counsel and Ryan Tarkington is senior counsel and Mai’s right-hand man.
Brian Haufrect and Nameer Siddiqui at Goldman Sachs in Houston provided financial advice to Rowan. Morgan Stanley, HSBC Securities and Citi assisted Ensco. Stephen Trauber and Serge Tishmen advised from Citi. Vinson & Elkins advised Morgan Stanley, including partners Mark Kelly and Jeff Floyd.
The oilfield services sector has seen a pickup of M&A activity, as it’s in the beginning stages of a recovery with equipment utilization that’s moved off a 30-year low, according to RBC Capital Markets analyst Kurt Hallead.
“Dynamics around M&A usually takes place when the industry is coming off the market trough,” he said.
Last month, Transocean agreed to buy Ocean Rig for $2.7 billion. And a year ago, Ensco itself bought Atwood Oceanics for $863 million in stock.
Analysts at Tudor Pickering Holt called the deal a “beautiful combination” from a strategic perspective, with Rowan gaining immediate scale and breadth in the ultra-deepwater market and adding significant contract backlog while Ensco immediately regains its position as top global jackup player with the addition of Rowan’s high-specification jackup fleet.
“Our lone initial concern for this deal is the lack of an equity premium to RDC [Rowan] shareholders,” they said.
Ensco said the combination will have a broad portfolio of high-spec floaters (the second largest fleet in the industry) and jack-ups (the largest in the industry).
The buyer also said the deal gives it a diverse customer base, including most of the largest holders of offshore reserves, and the broadest geographic presence of any offshore driller, with operations in the Gulf of Mexico, Brazil and West Africa, among other places.
TPH analysts added that Ensco will gain exposure to the ultra-harsh jackup market, particularly in Norway, which is quickly beginning to tighten, and double-down on its already robust market share position with Saudi Aramco via the addition of Rowan’s ARO Drilling joint venture.
The company said the combination will be well capitalized with combined liquidity of $3.9 billion, including $1.9 billion in cash and short-term instruments. The company won’t have any secured debt with the next large tranche of maturities in 2024.
Revenue backlog for the two is expected to be $2.7 billion excluding ARO Drilling.
Ensco expects $150 million in annual synergies as a result of the merger, half of which will be general and administrative expenses and the rest operational. It also expects the deal to add to cash flow per share in the first full year after closing, which is anticipated in the first half of next year.
The deal has to clear shareholders of both companies and regulators.
Ensco shareholders will own 60.5 percent of the entity while Rowan stockholders will hold 39.5 percent. The transaction doesn’t have any financing conditions.
Rowan CEO and president Tom Burke will serve in the same posts while Ensco CEO and president Carl Trowell will become executive chairman. Ensco CFO Jon Baksht will remain in his position.
The remaining executive management team for the combined company will be named later, Ensco said.
The board will include Trowell and Burke plus five members from Ensco’s board and four members from Rowan’s board.
The combination will stay in the U.K., where both Ensco and Rowan are domiciled, and senior executive officers will be in London and Houston.