MergerMarket
Songa/Transocean new long-stop date to allow offer extension if needed – Songa CFO
Bidder share price upturn could help offer acceptances - Songa CFO
Late SEC offer doc approval contributed to later long-stop date - source
Flowback risk seen reduced by lock-up, broad shareholder mandates
Songa Offshore [OSE:SONG] and Transocean [NYSE:RIG] extended the long-stop date on their proposed merger to allow for a potential extension of the offer period, if that becomes necessary, the target’s CFO Jan Rune Steinsland told this news service.
It remains too early in the offer period to say how many acceptances may come in until the closing date of 23 Jan, Steinsland and a source close to the situation said.
The Norwegian offshore driller and its US-based suitor late last month agreed to extend the long-stop date from 31 Jan to 15 Feb. The offer period runs from 21 Dec to 23 Jan according to the offer document. But Transocean aims for at least 90% acceptances, and the new long-stop date will allow for a longer expansion of the bid period if that should be necessary to reach the target, Steinsland explained.
According to the offer document, Transocean can waive the 90% minimum acceptance condition, but will then need to launch a mandatory cash offer for remaining shares if it ends up with a 30%-90% stake.
There is a good chance of reaching 90%, Steinsland argued. Transocean offers an attractive deal, and the terms have become even better for Songa’s shareholders thanks to the bidder’s share price increase since the deal announcement, he said.
As per the bid announcement, the offer is largely made up of equal parts shares and convertible bonds, with an option to instead receive up to NOK 125,000 (EUR 12,800) per shareholder in cash. Transocean stock is up about 30% as of today (3 Jan) from 14 Aug, the day before the offer announcement.
Transocean’s share price increase may be partly explained by investors taking an increasingly positive view on the Songa acquisition, a sector banker suggested. But it is likely also driven by improved sentiment in the wider oil service industry, he added, with many sector players hoping for a recovery. Market watchers have seen Transocean’s offer as rather rich but possibly motivated by cost synergies and strong strategic rationale, as reported previously.
The deal is also conditional on approvals at a 16 Jan Transocean EGM of proposals including share issuance for the bid consideration. So far, there have been no signs of any negative response ahead of the EGM vote, Steinsland said. It would be surprising to see Transocean’s shareholders voting down the deal, the sector banker argued, adding that the improving wider industry trends should help Songa’s prospects and thus make the target more attractive.
The parties expected to close the deal in late 2017 or early 2018 when they announced the transaction last summer. But the US Securities and Exchange Commission’s (SEC) approval of the offer document took a bit longer than expected to achieve, and this contributed to the extended long-stop date, the source said.
Songa investors representing around 77% of the share capital, including Perestroika, Asia Research & Capital Management (ARCM) and York Capital, have irrevocably pre-accepted the deal, as reported previously.
Provided the deal goes through, the risk of any flowback of Transocean shares should be limited, Steinsland, the source and the sector banker agreed. Perestroika has agreed a 12-months lock-up on the offer consideration shares as per the bid announcement, they all pointed out. ARCM and York Capital also have broad investment mandates and should be able to hold onto the US-based suitor’s stock, Steinsland added.
According to the offer document, Perestroika, ARCM and York Capital control respectively 45.4%, 23.4% and 7.6% of Songa’s shares. Songa’s shareholder base also includes various international institutional investors such as Goldman Sachs, Morgan Stanley and Danske Bank.
Songa’s market cap as of today is NOK 8.23bn (USD 1.02bn) compared with Transocean’s USD 4.28bn.
A Transocean spokesperson was not immediately available to comment.