We expect a positive market reaction from the news about the Technip-FMC merger. We see this as a further step for both companies in providing a more integrated service to clients, and the announced synergies create additional
upside to both Overweight rated stocks.
* Targeted synergies: $400m of pre-tax cost synergies in 2019 (3% of
combined cost structure); 50% of this to be achieved in 2018. We think
that this implies value creation of ~$4bn by the end of 2019, which
compares to a combined market cap of $12.5bn, making the expected
value creation just over 30% of the combined market cap. The synergies
are primarily related to supply chain efficiencies, real estate, infrastructure
optimisation and other corporate and organisational efficiencies.
* All stock transaction: Technip shareholders to receive 2.0 shares of the
combined company for each share of Technip and FMC Technologies
shareholders to receive 1.0 share of the combined company. Each
company's shareholders will own close to half of the combined entity.
* Management changes: Executive Chairman of new company
TechnipFMC will be Thierry Pilenko (CEO of Technip). CEO will be Doug
Pferdehirt (CEO of FMC).
* Timing: Transaction closing expected in early 2017.
* Pro forma financials: End 1Q16 combined backlog of ~$20bn,
combined 2015 EBITDA of ~$2.4bn, end 1Q16 combined gross cash
position of $5.7bn and combined 2015 EBITDA margin of 12.1%.
* Shareholder returns: “Attractive shareholder return policy including
market based dividend; and share buy-back in line with cash flow
generation”.
* Conference call details: Call 1 - 8:30am UK time with dial-in: 0207 107
1613. Call 2 - 1:00pm UK time with dial-in: 0203 367 9456.