Based on CGG's American Depositary Shares ("ADSs") and Veritas' shares closing prices on the NYSE on August 29, 2006 of US $33.33 and US $56.16 respectively:
- CGG will offer Veritas stockholders, subject to proration, the choice of receiving 2.2501 CGG ADSs with respect to 51% of Veritas' shares or US $75.00 in cash with respect to 49% of Veritas' shares;
- The aggregate value of the transaction is approximately US $3.1 billion, an implied premium of 34.7% over Veritas' 30-day average closing price of US $55.69 for the period ending on August 29, 2006;
- Shareholders of the combined group will benefit from holding a world class seismic stock;
- The transaction features strong business, geographic and client fit, with expected pre-tax run rate synergies estimated by CGG at approximately US $65 million per annum;
- The transaction is expected by CGG to be accretive to earnings per share in 2008 and approximately neutral in 2007 to cash earnings1 per share;
- Boards of Directors of both companies have unanimously approved the transaction; and
- Following shareholder and regulatory approvals, the combined group will operate under the name "CGG-Veritas".
The combination of CGG and Veritas will create a strong global pure play seismic company, offering a broad range of seismic services, and geophysical equipment, through Sercel, to the industry across all markets. The combined seismic services will operate the world's leading seismic fleet with 20 vessels, including 14 high capacity 3D vessels, and land crews operating with equivalent capacity in both the Western and Eastern hemispheres. The multi-client services will benefit from two complementary, recent vintage, well positioned seismic data libraries. In data processing and imaging, CGG's and Veritas' respective positions will combine to create the industry reference.
With a combined workforce of approximately 7,000 staff operating worldwide, including Sercel, the future group will provide, through continued innovation, the industry benchmark for seismic technology and services to a broad base of customers including independent, international and national oil companies.
1 Earnings before implementation cost of synergies, transaction costs and impact of purchase accounting
The Board of Directors of Veritas has unanimously approved the agreement and will recommend that Veritas stockholders adopt the transaction. Similarly, the Board of Directors of CGG has also unanimously approved the agreement and will recommend that CGG's shareholders approve the issuance of new CGG stock to the Veritas shareholders. The transaction is expected to be completed around year end 2006, subject to receipt of shareholder and regulatory approvals, as well as the satisfaction of other customary closing conditions.
CGG's Chairman and CEO, Robert Brunck commented: "We are very enthusiastic about the business potential of CGG and Veritas being combined. CGG-Veritas will be a leading global seismic company and the only pure play listed investment opportunity of this scale in the seismic sector. Because of our many complementarities, with all its multidisciplinary and talented personnel, and the strongest asset base in the sector, the future group will constitute an excellent platform to maximize the value of our respective businesses and technologies. In the context of the seismic sector benefiting from solid fundamentals, as illustrated by our excellent first half financial performance, and with the current growth cycle expected to remain strong and lasting, this transaction will create value to the shareholders of both CGG and Veritas."
Veritas' Chairman and CEO, Thierry Pilenko commented: "This transaction presents our combined companies with a tremendous opportunity. Together, the talent of our people, the strength of our technology and technique, our leading edge acquisition capabilities, state-of-the-art proprietary imaging technology and high quality data library assets will enable CGG-Veritas to better serve our customers and deliver superior returns to our investors. Our operations and strategy are very well aligned and I am very excited about the combination of our companies. I look forward to working with Robert Brunck to facilitate the integration of these two outstanding companies".
Under the terms of the merger agreement:
- The total consideration for the shares of Veritas is fixed at approximately US $1.5 billion in cash and approximately 47 million CGG ADSs, not including cash paid in respect of employee stock options in the transaction. Veritas shareholders will have the right to elect cash or CGG ADSs, subject to proration if either cash or stock is oversubscribed. The cash consideration will be financed through debt financing fully committed by Credit Suisse.
- While the per-share consideration is initially set in the merger agreement at US $75.00 in cash or 2.2501 CGG ADSs, the per-share consideration is subject to adjustment upwards or downwards so that each Veritas share receives consideration representing equal value. This adjustment will, however, not increase or decrease the total amount of cash or the total number of ADSs to be issued in the transaction.
- The current value of the transaction to Veritas shareholders, based on August 29, 2006 closing price of the CGG's ADSs on the NYSE (US $33.33), is approximately US $3.1 billion. This represents a 33.5% premium over Veritas' closing stock price on the NYSE of US $56.16 on August 29, 2006 and a 34.7% premium over Veritas' 30-trading day average closing price of US $55.69 for the period ending on the NYSE on August 29, 2006.
- The resulting shareholding of CGG-Veritas should be held approximately 65% by CGG's shareholders and 35% by Veritas' shareholders.
- Based on the two companies' strong businesses, geographic and client fit, expected pre-tax run rate synergies are estimated by CGG at approximately US $65 million per annum. Based on CGG's estimates, the transaction is expected to be accretive to earnings per share in CY2008 and approximately neutral to cash earnings per share in CY2007. In terms of gearing, CGG is confident the combined group's anticipated cash flows characteristics will provide significant debt amortization capacity which should allow it to maintain its current credit profile.
The new Board of Directors is expected to reflect the combined shareholder base with Robert Brunck as Chairman and CEO. Thierry Pilenko, currently Chairman and CEO of Veritas, will be proposed for appointment as one of the combined company's new Board Directors.
After the merger, Geophysical Services will be headed by CGG's Christophe Pettenati-Auziere, President Geophysical Services, reporting to him will be Timothy L. Wells, President Western Hemisphere and Luc Benoit-Cattin, President Eastern Hemisphere. Mr. Pettenati-Auziere is currently President, Geophysical Services of CGG, Mr. Benoit-Cattin is currently Executive Vice President, Offshore of CGG and Mr. Wells is currently President and COO of Veritas.
The conduct of Sercel's business will be unchanged in the context of this transaction.
Credit Suisse and Rothschild are acting as financial advisors to CGG. Skadden, Arps, Slate, Meagher & Flom LLP, Willkie Farr & Gallagher LLP, Linklaters and Goodmans LLP are acting as legal advisors to CGG. Goldman Sachs is acting as financial advisor to Veritas. Vinson & Elkins LLP and Paul, Hastings, Janofsky & Walker (Europe) LLP are acting as legal advisors to Veritas.
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