Transocean Ltd. is acquiring all outstanding common units of its master limited partnership (MLP), Transocean Partners LLC, in an all-equity deal estimated to have an enterprise value of $1.6 billion.
The share-for-unit transaction will grant the MLP’s unitholders 1.1427 Transocean shares for each partnership unit, which has an exchange ratio representing a 15 percent premium to its closing price July 29, according to a Transocean news release. Once the transaction is complete, the company will have a 51 percent ownership in the Discoverer Inspiration, the Discoverer Clear Leader and the Development Driller III.
Jeremy Thigpen, Transocean CEO, said in the statement that the all-equity transaction is consistent with the company’s liquidity objectives. In addition, the merger provides an immediate benefit to Transocean from a simplified administration and governance, as well as tangible cost savings, he said.
Analysts at Tudor Pickering Holt & Co. (TPH) in Houston said the non-cash deal increases Transocean’s liquidity and adds cash flow. Two of the three rigs that Transocean takes in the merger are contracted at $580,000 per day through October 2018.
In addition, TPH said in a note to investors, “We always struggled to see benefits of offshore rigs housed in an MLP [yield vehicle] given offshore pricing/contracting outlook.”
MLPs are typically structured as growth vehicles, and Transocean’s partnership took a 6.6 percent yield in its initial public offering. But in the current market, TPH noted, growth is “all but impossible.” The analysts said the merger is a nice step in the right direction, but it’s not a game changer.
Earlier this year, Thigpen said it will likely be another three years before Transocean and other large offshore drilling rig suppliers will be able to command higher rates for offshore rigs.