Technip/FMC Technologies have announced a USD13bn merger this morning, formalising their Forsys JV. Technip/FMC will have a roughly equal share of the combined company upon completion. The synergies targeted are significant - and above what we expected – we see a significant upward move this morning as fair although 15% (at the time of writing) is perhaps higher than we’d have expected. More details/conf call details below.
Who are FMC Technologies? They are the #1 supplier of subsea production systems (SPS), such as trees and manifolds, and processing equipment, competing with OneSubsea, Aker Solutions and GE, as well as being a significant player in provide surface flow equipment onshore. The co had revenues of USD6.4bn and EBITDA of USD1bn (15.2% margin) in 2015.
Merger details
This is a merger of equals, with TEC shareholders having marginally more than 50% of the combined entity upon completion (current market caps are USD6.2bn for TEC and USD6.6bn for FMC Technologies); completion is expected early 2017 with listing in Paris and New York.
Combined co had ~USD20bn of 2015 revenues and EBITDA of USD2.4bn last year.
The industrial logic is around the formalisation of the Technip/FMC joint venture Forsys, which was formed last year and has been targeting performing joint SURF/SPS projects and marketing potential 30% cost savings for clients as a result - with benefits such as integrated project delivery, more product standardization/joint R&D and more early engagement.
We’re not surprised… but earlier than we thought: Forsys has had some success in winning FEED work but there has not yet been a full conversion to a more significant EPC contract; we thought that a merger was a distnict possibility but that it would not emerge until more progress had been seen in terms of project awards/execution.
Significant synergies: The cost synergy number of USD200m (2018) and USD400m (2019+) is larger than we'd expect and equates to a ~20% uplift on pro-forma EBITDA. Given the lack of direct overlap/competition between the two co's, this is higher than we would have expected from such a transaction (and equates to about 3% of the cost base).
The cost of implementation is USD250m.
Financial details below – accretive to TEC shareholders even with synergies: TEC contribute significantly more of the EBITDA near-term (68%/62% in ‘16E/’17E on consensus estimates) although we think that, given FMC Tech’s higher returns/barriers relative to much of Technip’s business (particularly Onshore/Offshore) that this is fair.
The contribution notably shrinks as we get to 2018 when TEC’s current strong backlog rolls off (56%/44% from TEC/FMC respectively) – and with the significant synergy number, the deal is still accretive to TEC shareholders.
Don't expect antitrust issues: The two companies don't compete directly with each other, so this is much like the Schlumberger/Cameron deal that was completed smoothly as opposed to the recently blocked Halliburton/Baker Hughes transaction.
Leadership: Pilenko is going to move to the Chairman role with the recently appointed FMC Tech CEO Douglas Pferdehirt moving to the CEO role of the combined company. There’s no details on the CFO.
Our first thoughts: We think this is positive for Technip s/holders with longer-term EBITDA uplift on the high synergies number, a mix shift towards a higher return/margin business, together with the industrial logic of the deal.
Read-through: We see mixed read-through for SUBC (stronger competitor – but potential disruption from the merger and also possible speculation that ‘they could be next’ with their alliance with Schlumberger) and negative read-through for CGG (any hope of Technip returning near-term will be gone with this deal).