Maersk Drilling paired with a Norwegian peer makes logical step in company split - Merger Market
- Strong offshore players could acquire
- Further division as M&A catalyst
- Depressed oil market could discourage buyers
Denmark-based Maersk Drilling could combine with a Norwegian drilling peer as a consequence of its parent company’s restructuring process, two sector bankers and two sector lawyers said.
On 22 September, A.P. Moller-Maersk [CPH:MAERSK] confirmed it will divide its business into two divisions - transport and logistics, and energy. The energy division will comprise Maersk Drilling, Maersk Oil, Maersk Supply Service and Maersk Tankers. New investments into its Maersk Drilling, Maersk Supply Services, and Maersk Tankers businesses will be limited, while Maersk Oil will focus on selected basins through M&A.
It could make sense for Maersk Drilling to enter into a partnership with a Norwegian offshore drilling peer engaged in refinancing, and together combine these into a Norwegian holding company that would be recapitalised, the first sector lawyer said.
In previous report by this news service, it was argued that Maersk Oil, which sits alongside Maersk Drilling within the energy division, would be a more attractive M&A target without its attachment to the drilling business.
“Name me one other integrated E&P and oilfield services company,” the first sector banker said. “There is none. The last wasEni [BIT:ENI] and Saipem [BIT:SPM]. Statoil [STO:STLO] had some rigs but everyone has now discarded that model for a reason.”
Norwegian magnates on the prowl
A.P. Moller-Maersk’s restructuring will likely pique the interest of Norwegian offshore companies and there is a notion that some may have already started talking to the parties involved, the first of the bankers said.
There are three or four Norwegian companies that are in a position to take advantage of the downturn in oil prices and pick up assets cheaply, and some of this is related to the Maersk situation, the first banker added.
A typical valuation metric in the offshore drilling sector is around 5x EBITDA, but the uncertainty in the sector would depress this metric and the amount of debt that would be transferred is unknown, an analyst following the company said, giving Maersk Drilling a likely DKK 40bn (USD 5.9bn) enterprise value. In 2015, Maersk Drilling generated USD 732m in underlying profit and USD 751m in operating profit, according to its annual report.
Kristain Siem, who is the majority owner of Siem Offshore and Subsea 7 [STO:SUBCO], John Fredriksen of the Fredriksen Group and Geveran Holdings, and Kjell Inge Røkke - the majority owner of the Aker Group – are some of the more logical players with capital available to consider taking on Maersk Drilling, the first banker said.
The offshore drilling sector is on thin ice financially and many companies are forced to take defensive measures, yet these have a more proactive approach and strong balance sheets, the first banker said.
If the likes of Subsea 7 and Aker successfully restructure in this downturn, they will be in very strong positions for when the market picks up, the third sector lawyer said. Maersk Drilling will be left behind if it does nothing.
Others including Solstad, Rem and Aker, are already engaging in all share mergers, so a move to merge Maersk Drilling would not be out of the blue, a third sector banker said added.
Solstad Offshore signed a merger agreement with Rem Offshore and Solship Invest in September. The result of the merger will be Aker Group becoming the largest shareholder in the combined Solstad group with 24% of the shareholding.
Elsewhere, Farstad Shipping, a Norwegian offshore services provider, was planning to negotiate a refinancing with Aker but the decision was blocked by the company's creditors, according to press reports. These creditors, which included DnB, Danske Bank and Nordea, mandated PJT Partners to look at other options.
Overcapacity issues linger
Although the market is in a downturn, combining with a rival would reduce the competition and place Maersk in a more liquid position to sell out later in a recovering market, the third banker said.
The issue is whether this would be doubling up on the problem of overcapacity in the offshore drilling market, the third banker said. If someone was to actually buy Maersk Drilling this would not be the best time, the first and a fourth sector bankers and a second analyst following Maersk said.
Maersk Drilling is comparatively a successful company and is ambitious, the third lawyer said, despite the strategy laid out in the split.
What Maersk Group thinks about the future of Maersk Drilling and what Maersk Drilling thinks about its own growth are two different stories and this may influence decisions taken with the unit, the third lawyer added.
A.P. Moller-Maersk did not respond to requests for comment.