McDermott International and CB&I today (18 December) unveiled plans to combine in an all-stock transaction valued at US$6 billion.
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| McDermott's DB 50. |
The companies say the merger will create a fully vertically integrated onshore-offshore firm with revenues of $10 billion, a broad engineering, procurement, construction and installation (EPCI) service offering and a market-leading technology portfolio.
The merger will give McDermott, which has focused on fixed and floating production facilities, pipelines and subsea systems for complex offshore and subsea projects, exposure to CB&I’s portfolio of onshore refining, petrochemical, liquefied natural gas and natural gas-fired power plants, said David Dickson, president and CEO of McDermott, during an 18 December conference call to discuss the merger. The merger will diversify each company’s exposure and provide more cyclical balance.
The companies have complementary geographic footprints – with McDermott’s strong presence in the Middle East and Asia and CB&I in the United States and Europe – that offer revenue synergies for the combined company. Both companies have a similar focus on large construction projects and fixed, lump sum contracts, Dickson said.
The combination will create a company better able to compete in a market not only being disrupted by commodity prices, but geopolitics, and environmental concerns. Shifts also are occurring in the global energy profile, with substantial growth in shale gas, renewables, and deepwater; the impact of these changes is not yet fully understood, Dickson said.
“As a result, our customers need predictivity and efficiency gains wherever possible, and are more careful buyers and stewarts of capital expenditures (CAPEX),” Dickson commented. He expects CAPEX to be directed towards shorter scale, onshore projects, in the short term, and in the medium term, investment in longer cycle, offshore projects as well.
Dickson said the combination would satisfy all three areas – technology, scale and diversification – that have been the focus of McDermott’s transformation under Dickson’s leadership. Since Dickson came on board, the company has cut the number of loss-making projects from nine to one, achieved about $200 million in savings through cost initiatives, and transformed the company culture to improve customer focus, he said.
The combined company would rank sixth behind Fluor, Jacobs ch2m, TechnipFMC, Saipem, and Wood in terms of annual revenues. It will have a work backlog of $14.5 billion, adjusted EBITDA of just over $1 billion, and adjusted net income of $534 million, Dickson said. Annualized cost synergies of $250 million also are anticipated in 2019. Fifty-five percent of the combined company’s revenues would come from the US; the remaining 45% would come from Asia, the Middle East and other areas. Seventy-one percent of its revenues would come from onshore, and the remaining 29% from offshore projects.
Under the agreement, CB&I shareholders will receive 2.47221 shares of McDermott common stock for each share of CB&I common stock. McDermott will own about 53% of the combined company on a fully diluted basis; CB&I shareholders will own approximately 47%.
Dickson will serve as president and CEO of the combined company, which will be headquartered in Houston. The merger is expected to close in Q2 2018.
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