Øystein Stray Spetalen’s S.D. Standard Drilling is considering voting against the proposed merger between Noble and Maersk Drilling, raising concern over the exchange ratio in the transaction.
The merger will be settled in shares, where Maersk Drilling shareholders will receive 1.61 shares in the new company for each share they currently own, resulting in approximately 50/50 ownership of shares that will be listed on the NYSE and Nasdaq Copenhagen. The transaction is, amongst other things, subject to Noble shareholder approval.
Standard Drilling, as a shareholder, said that the optics of the deal to unlock synergies of $125m per year, where a combined entity would be cash flow positive from day one and have an earnings capacity similar to that of Transocean, despite having just half of the enterprise value, were appealing.
This is not a merger of equals
However, it asserted that, in the company’s view, “this is not a merger of equals.” Standard Drilling argued the value of 7G floaters, of which Noble has seven, should be comparable to the CJ70 jackups, of which Maersk Drilling has five. This is due to better rates and utilisation currently in the floater market.
“We argue the gross asset values in the two companies are similar. This view is also supported by the multiples in the proposed transaction, with Noble trading at 6x ’22 EV/EBITDA with a 7% FCF yield while Maersk Drilling would trade at ‘13x with a 1% FCF yield,” Martin Nes, chairman of the board of directors of Standard Drilling, said in a letter to Noble.
According to Standard Drilling, other major shareholders share their concerns, and if the proposed exchange ratio is such that Maersk Drilling will receive around 1.61 Noble shares, the company will consider voting against the transaction.
“Standard Drilling fully supports industry consolidation in the offshore drilling market. However, we, and other shareholders that have contacted us, are concerned about the proposed exchange ratio and will consider voting against the transaction,” said Nes in the letter.
Spetalen’s firm bought 1% of Noble in March, which it cashed in later for $2m profit and has since reportedly bought more shares in the US offshore drilling contractor.