![](/sites/default/files/styles/hart_news_article_image_640/public/image/2019/02/shutterstock-702217840.jpg?itok=sWsE_e8F)
This is a developing story, check back for updates.
McDermott International Inc. (NYSE: MDR) and CB&I (NYSE: CBI) announced Dec. 18 that the companies have agreed to combine in an all-stock transaction.
Upon completion of the transaction, McDermott shareholders will own approximately 53% of the combined company on a fully diluted basis and CB&I shareholders will own approximately 47%, according to a press release. Under the terms of the business combination agreement, CB&I shareholders will be entitled to receive 2.47221 shares of McDermott common stock for each share of CB&I common stock owned (or 0.82407 shares if McDermott effects a planned three-to-one reverse stock split prior to closing), subject to any withholding taxes. The estimated enterprise value of the transaction is approximately $6 billion, based on the closing share price of McDermott on Dec. 15.
"Customers worldwide increasingly seek a single company that can offer end-to-end solutions, and the combination of McDermott and CB&I responds to these evolving customer needs by creating a leading vertically integrated company," said David Dickson, president and CEO of McDermott, in a statement. "This transaction combines two highly complementary businesses to create a leading onshore-offshore EPCI company driven by technology and innovation, with the scale and diversification to better capitalize on global growth opportunities.
“McDermott has been on a three-year journey that has transformed our company and created a model for delivering sustainable and profitable growth that we believe will unlock value in the near and long term,” he continued. “By applying McDermott's operational excellence across the combined portfolio, we will be a best-in-class solutions provider driven by consistency in systems, processes, execution and culture. We have great respect for the CB&I team and look forward to working with them to realize significant benefits for our combined shareholders, customers and employees."
"The combination with McDermott maximizes value for shareholders and provides the opportunity to participate in significant upside potential as we create a premier vertically integrated engineering, procurement, fabrication, construction and installation provider with significant scale, diversification and global presence," said Patrick K. Mullen, CB&I President and CEO, in a statement. "Together, we will have a broadened reach across the entire energy industry that addresses evolving customer needs, along with a much stronger and more flexible financial profile than CB&I would independently, which will benefit all our stakeholders. This unique opportunity to combine with McDermott was presented as we pursued the sale of our Technology and former Engineered Products businesses. Our Supervisory and Management Boards and our management team reviewed multiple strategic options and we ultimately decided this transaction is the best path forward and in the best interest of CB&I, and its shareholders and other stakeholders."
The combination will unite McDermott's established presence in the Middle East and Asia with CB&I's robust operations in the U.S., creating a balanced geographic portfolio with a strong position in high growth developing regions, according to the release. Together, McDermott and CB&I will have a presence across onshore and offshore, upstream, downstream and power markets.
The transaction is expected to be cash accretive, excluding one-time costs, within the first year after closing. It is also expected to generate annualized cost synergies of $250 million in 2019. This is in addition to the $100 million cost reduction program that CB&I expects to have fully implemented by the end of 2017. The cost synergies are expected to come from operations optimization, G&A savings, supply chain optimization and other related cost savings.
Further, McDermott and CB&I expect that the transaction will lead to substantial revenue synergies due to the enhanced capabilities of the combined company.
Following completion of the transaction, the combined company will be headquartered in the Houston area. Dickson will be president and CEO of the combined company, and Stuart Spence, current executive vice president and CFO of McDermott, will be executive vice president and CFO of the combined company. CB&I’s Mullen will remain with the combined company for a transition period to ensure a seamless integration. Operational leadership will include representatives from both companies.
The board of directors will be comprised of 11 members, including 10 independent directors and Dickson. Five of the independent directors will come from McDermott and five will come from CB&I. Gary P. Luquette, non-executive chair of the McDermott board, will serve as the combined company's non-executive chairman.
The combination involves a series of transactions under Dutch law resulting in the sale of CB&I's entire business, as well as an exchange offer by McDermott in which CB&I's shareholders can tender their shares. Both the sale and the exchange offer will result in the same consideration for CB&I's shareholders (subject to tax consequences, including potential Dutch withholding taxes in respect of shareholders that do not participate in the exchange offer).
Recommended Reading
VAALCO Reports Increased Reserves After Svenska Deal
2024-07-16 - VAALCO acquired Swedish E&P Svenska’s 27.39% non-operated working interest in the deepwater Baobab Field in Block CI-40, offshore Côte d’Ivoire.
Crackin’ It at Kraken: Inside the Bakken’s Ramped-up Private E&P
2024-07-24 - Kayne Anderson-backed Kraken Resources is producing more than 80,000 boe/d today and has a new Fitch Ratings credit score to take to the M&A bank.
Private Equity Looks for Minerals Exit
2024-07-26 - Private equity firms have become adroit at finding the best mineral and royalties acreage; the trick is to get public markets to pay more attention.
Exclusive: XCL Increases Production Amidst Lookout for More Inventory
2024-06-07 - XCL Resources is beginning its journey to acquire Altamont Energy, but in the meantime, the company is refining its operations in the Uinta Basin to find the perfect lateral length.
Sea Power: Noble’s Deal Fires Major Volley in Offshore, Services M&A
2024-06-14 - Noble Corp.’s $1.6 billion acquisition of Diamond Offshore Drilling may seem like small potatoes compared to the upstream sectors’ massive megadeals, but service sector consolidation could snowball, analysts said.