Seadrill Makes a Move on Scorpion, Board Votes Against

On April 28, 2008, Seadrill announced that it had acquired 8.1 million shares of Scorpion bringing its total shareholding to 19,494,700, an ownership position of 36%. In accordance with Norwegian Securities law, Seadrill must offer to acquire all issued and outstanding shares of Scorpion.

The Mandatory Offer is that required offer and it offers NOK 80 per Scorpion share, in cash. Detailed information about the Mandatory Offer, including the conditions of the Mandatory Offer, is included in the Mandatory Offer document dated May 26, 2008.

The Board believes that the combination of Scorpion's high specification jackups and other growth opportunities with the modern Seadrill fleet could create significant synergies but those synergies would benefit only Seadrill, not Scorpion shareholders, if the Mandatory Offer is successful. In addition, the Board does not believe that the Mandatory Offer reflects the true value of Scorpion for the following reasons:

  • Since February, Scorpion has greatly increased its jack-up contract backlog, taken delivery of its third rig and added an additional $1.1 billion in contract backlog through a 6 year letter of intent from Petrobras for a new deepwater semisubmersible
  • Since February 14, 2008, the date of the Fortune Private Equity (FPE) announcement regarding its intention to acquire all Scorpion shares at a price of NOK 80, drilling company share prices have increased dramatically - generally in the range of 27 to 62%. The Board believes that it is reasonable to assume that the value of Scorpion shares would have increased a comparable amount. Accordingly, the NOK 80 per share currently offered represents a minimal premium over the Scorpion share price that would be expected in the absence of the Mandatory Offer
  • Since late April, over 20% of Scorpion's shares have traded on the OSE at share prices around NOK 83
  • Seadrill, in its fourth quarter 2007 report dated 27 February, 2008, while discussing their ownership positions in Scorpion and Odfjell Drilling ASA in relation to recent third party offers to buy those companies, states 'However, the Board is of the opinion that the bid prices do not reflect the true value of these companies and that Seadrill therefore is likely to remain a minority shareholder in the two companies.' As the FPE offer was at NOK 80 per share, it is apparent that Seadrill believes that Scorpion is worth more than the price that they have offered in the Mandatory Offer.
  • Taking all of these factors into consideration, the Board believes that an offer of NOK 80 per share for the remaining shares in Scorpion is inadequate and does not represent the best opportunity for a premium over the market price for Scorpion shares. In light of the foregoing, the Board (by unanimous vote of all directors) recommends that Scorpion shareholders not accept or tender their shares in the Mandatory Offer.