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Third Avenue Management Comments on Ocean Rig UDW

- By Holly LaFon

In September Ocean Rig UDW (NASDAQ:ORIG), one of our two offshore drilling rig company investments, agreed to be acquired by larger industry peer Transocean Ltd at an approximate 30% premium to Ocean Rig's pre-announcement trading price. Although we believe the price paid was ultimately on the cheaper side, much of the price paid is in the form of Transocean common stock, which could provide additional upside should one want to continue to hold shares of Transocean. This development led to Ocean Rig being the Fund's second largest positive contributor to performance during the quarter. Ocean Rig is one of two oil service companies we purchased following their reemergence as publicly traded equities following their respective bankruptcy processes. The other such investment is Tidewater. The bankruptcy process allowed both companies to reorganize with pristine balance sheets, essentially all of their debt having been converted into equity. They also initially traded with very compelling valuations and sported high quality underlying assets. As the offshore oil services industry continues its recovery from cyclical depths, the industry consolidation aspect of our investment thesis has certainly picked up steam.


From Third Avenue Management (Trades, Portfolio)'s third-quarter 2018 shareholder letter.
This article first appeared on GuruFocus.