I love this Transocean-GlobalSantaFe deal.
For one thing, I love any deal which creates a $53 billion company by combining
two firms that almost no one has ever heard of. And for another thing, I love
the idea that even though Transocean (market cap: $32 billion) is clearly acquiring
GlobalSantaFe (market cap: $17 billion), the deal is still being described with
a straight face as a "merger of equals".
My favorite bit of all, however, is the way that the combined company is going
to have to raise $15 billion in order to finance this, er, all-stock deal. Even
as debt offerings are being pulled or downsized across the markets, these drillers
are borrowing money for no real purpose other than giving it straight to their
shareholders. Bloomberg
quotes Morgan Keegan’s Michael Drickamer:
Because the drillers were earning money faster than they could reinvest it
wisely, giving cash to shareholders through the deal makes sense, Drickamer
said.
But it’s not as simple as that. Here’s Reuters,
with a bit more detail:
"This is the type of transaction shareholders have been clamoring for,"
said Mark Urness, an analyst with Calyon Securities.
"They have managed to dividend-out a portion of their backlogs,"
Urness said.
The combined company would use its first two years of free cash flow to reduce
debt.
Essentially, the companies are borrowing $15 billion, giving it to their shareholders,
and will then spend the next two years paying that money back as fast as possible
out of cashflow. Apparently, this makes more sense than just taking the cashflow
and giving that to shareholders.
The era of leveraged deals is far from over, it would seem.