Below is from the Wall street Journal. Can't help but feel HERO further reducing its cash is not a good thing for assets that are losing money. Remember, they made a loan payment so their cash is about 100 million not including free cash flow from the 4th quarter. Can someone help me out on the additional shares- will this be a secondary and what will be offering price be? Disclosure: I got out at $3.62 and thought it would head towards 50 dma. This may have been a mistake and I would consider getting back in but cannot understand this deal. Only 4 of HAWK's 9 useable rigs are active and the rest cold stacked. Why not let them go BK and just take the rigs that are working? $105 million is a premium to the 94 million market cap HAWK closed at on Friday before AH drop.
Think I have proven myself on this board and am looking for help here because I do not understand this deal. Thanks in advance.
Seahawk's assets will be acquired by Hercules Offshore Inc., in a cash and stock deal worth about $100 million. The cash component will be $25 million but could be upped another $20 million if needed to pay Seahawk's debt. Hercules will also provide the seller 22.3 million shares of common stock,
I recalled few months back Hero
updated there communications system so that they can keep a better track of there fleet's positions and so on,now with this news,and hero trying to position there rigs overseas,I think in given time hero will be a very big player internationally.
Does anybody have some knowledge as to when Hero starts the P&A work the federal government mandated? Plugging 3,500 oil wells and removing 600 + platforms could require alot of equipment. Management could already know this and realize the revenue stream will be there to support the Hawk asset purchase.
It's a great question. Don't know the answer, but if this work sees them through, to a point in which shallow water drilling is coming back, it could be why they felt secure in doing this deal, as you point out.
I'm wondering, too, if jonoakley factored this coming work, in his evaluation of HERO.
You are right, the problem is; HAWK had to sell in this depressed market. So, they got what they were worth as of now. A year from now? Who knows what they would be worth. Just like home values in Las Vegas right now. 5 years ago a home worth $500k is now worth $100k, because that is what a willing buyer will pay. Same with these rigs. It's called capitalism.
That's right. And it's not like HAWK, if it were a going concern, would be writing down its shareholder equity from $380 M to $100 M, at 12/31/10. At least I don't think so. I mean, HERO itself has just announced a fairly modest writedown of about $100 M on it's $800-900 M or so of shareholder equity. And TransOcean's write down, as a percent of shareholders' equity, was even less than that.
The fact of the matter is, this is a bargain purchase for HERO. These assets can't be replaced, for the price it is paying. If we need to do a rights offering, later this year, at $5 a share, for 40 million shares of HERO, to get us through the downcycle, then so be it. Longer term, shallow Gulf drilling is coming back, as is natural gas pricing. Will we make it through to that point? I think so. And I still think HERO's stock price does not adequately discount that there is a much better future ahead....and that the financial risk is much lower than a $3.70 stock price suggests.
I'm in agreement with longtimefollower's reply. This is a very bullish sign that HERO is interested in Seahawk's rigs. My guess is that Hercules has an immediate plan to deploy some of Seahawk's idle rigs. With much of Hercules existing fleet aging, this is likely a way for them to refresh a lot of their equipment on the cheap. And, with one less competitor in Hercule's primary operating area, mainly the GOM, Hercules now has greater command of prevailing day rates.
Also, HERO has adequate cash on hand to carry them forward until they return to profitability. They've only outlayed $25 million in cash out of the $134 million they had on hand, so if this acquisition can help them to return to an operating profit, it is money well spent. I believe we go higher on Monday!
The market cap of HAWK may have been 100mil but the assets were book valued at nearly 400mil so this seems to be a deal too good to pass up. They still have had positive cash flow so reducing their total cash position didn't seem to be an obstacle. I guess we'll all know more on Monday morning but right now I feel it's a great deal for HERO and I think the stock is going to open Monday substantially higher.
Appreciate the response. However, assets are really worth only what people will pay for them, not what they are being carried for (learned that the hard way). If rigs are only worth 5 million each then the book value of HERO goes down dramatically and the market has the share price right. The debt issue, which was the basis of the WF downgrade, only gets moved up with this deal- why would HERO be buying now? If the market turns, which I think it will, later this year HERO already has enough rigs to meet the demand. That was my basis for owning and that no analyst was considering that. Now HERO has less cash, more shares, and more rigs in a market that has not turned yet. The debt covenant issues are REAL and how does this help that? I want to get back in but I need answers to these questions. What stops HERO from becoming HAWK in a few months, maybe even sooner.