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Rowan Gets Revised Exchange Ratio of 2.750 Shares From Ensco

Zacks Equity Research
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Rowan Companies plc RDC has received another offer from Ensco plc ESV to increase the exchange ratio. The proposal follows after Ensco announced a hike on Jan 14 for the previously-announced transaction, wherein the company will merge with Rowan in an all-stock deal.

Per the terms of the proposal, Rowan shareholders will receive 2.750 shares of Ensco for each share of Rowan, up about 24.2% from 2.215 exchange ratio considered under the definitive agreement entered into on Oct 7, 2018. On closure of the transaction, shareholders of Ensco and Rowan will own about 55% and 45%of the outstanding shares of the combined company, respectively.

The remaining terms and conditions of the agreement remain unchanged.

Per recent regulatory filings, Odey Asset Management LLP, one of Rowan’s largest shareholders, has pledged support to Ensco for the amended transaction by entering into an irrevocable voting agreement for the firm’s holdings of about 11.4 million or about 9% of Rowan shares outstanding.

This proposal will be reviewed by Rowan’s board of directors. The board will decide the course of action that is in the best interest of the company and its shareholders.

The revised proposal is likely to realize annual expense synergies of about $165 million, up from $150 million anticipated earlier. Of the total, more than 75% of targeted synergies are expected to be realized within a year of closing. The deal, expected to close in the first half of 2019, is estimated to be accretive to cash flow per share in 2020.

On completion of the deal, the combined company’s board of directors will include Ensco’s president and CEO, Carl Trowell, as well as Rowan president and chief executive officer, Tom Burke. The team will also include five additional members from Ensco’s current board and four additional members from Rowan’s board.

The combined company will have a fleet of 82 offshore rigs, which includes 28 floaters and 54 jack-ups. This includes two drillships as well as a jack-up rig under construction and does not include rigs that are part of Rowan’s ARO JV in Saudi Arabia. The new entity will possess the most technically-advanced fleet in the industry. This merger will create a leading offshore driller based on fleet size, geographic presence and customer base.

The combined company’s balance sheet is expected to have liquidity of about $3.7 billion, including $1.7 billion of cash and short-term investments. This will provide the entity financial flexibility to continue fleet upgrade and improve drilling efficiencies. The total revenue backlog for the combined company is estimated at about $2.6 billion, excluding ARO Drilling’s substantial backlog that is unconsolidated.

Zacks Rank & Stocks to Consider

Rowan carries a Zacks Rank #3 (Hold).

A few better-ranked players in the energy space are Sunoco L.P SUN and TransCanada Corporation TRP, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Houston, TX, Sunoco operates as a wholesale fuel distributor. The company is expected to witness year-over-year earnings decline of 38.9% in 2018.

Calgary, Alberta-based TransCanada Corporation (TRP) is a premier energy infrastructure provider in North America. The company generated average positive surprise of 19.1% in the trailing four quarters.

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