Technip/FMC Technologies synergies hurdle to rival offer
FMC Technologies’ [NYSE:FTI] proposed merger with Technip [EPA:TEC] is unlikely to be an appealing opportunity for an interloper, a source familiar with the matter and two industry bankers said. They cited the deal's expected synergies and ongoing challenges in the energy industry as among the reasons.
The US and French energy engineering service providers have announced plans to merge into a company valued at USD13bn in equity value. The deal is billed as a merger of equals that awards scant premium to either party based on recent trading averages.
The two companies had been contemplating the possibility of a merger for over a year after announcing a Forsys subsea JV, the source familiar and the first banker said. News reports indicated talks as early as December, though Technip denied “ongoing” negotiations at the time. Deal conversations picked up in earnest in January, said a person familiar with the matter.
Otherwise-logical FMC interloper Schlumberger [NYSE:SLB] is unlikely to be interested in a deal following the close of its April acquisition of Cameron International, the source and the first banker said. The USD 14.8bn transaction could keep the Houston-based oil field services major busy with integration and creates antitrust issues for an FMC bid. Halliburton (NYSE: HAL) too is unlikely to join the fray after its recent failed attempt to acquire Baker Hughes (NYSE: BHI), they said.
Industrial services companies Siemens [ETR:SIE] and General Electric [NYSE:GE] are also less likely to pursue either FMC or Technip, the source familiar and the bankers said.
Despite the small premium, the parties’ USD 400m synergy estimate could be a deterrent to a rival, said the second banker and a second person familiar with the matter. The companies serve E&P companies hit by low commodity prices that could make it difficult for rivals to offer even a modest premium, he said, reasoning that few companies would accept debt for a deal.
It could be difficult for other rivals to match synergy estimates, the second person said. The merger is expected to deliver cost synergies in the form of additional capacity, technological innovation, and customer workflow as customers continue to prefer suppliers of integrated projects. The companies are still assessing potential revenue synergies, executives said on a call with investors.
Technip has already vetted the possibility of a different suitor, the second banker said. The French company was reportedly in deal talks with FMC in December as part of a wider market check. The oil services business has not recovered enough since then to justify reconsideration by parties that expressed initial interest, he said.