2011-02-15-2011-02-14
To purchase rig fleet and related assets consisting of 20 jackup rigs in the U.S. GOM.
Houston-based Hercules Offshore Inc. (Nasdaq: HERO) plans to purchase the entire rig fleet and related assets from Seahawk Drilling Inc., Houston, (Nasdaq: HAWK) for approximately 22.3 million shares of Hercules common stock and cash consideration of $25 million. The total deal value is approximately $105 million.
The assets consist of 20 jackup rigs in the U.S. Gulf of Mexico and related equipment, accounts receivable cash and contractual rights.
The 25/75 cash-and-stock deal gives Hercules sole possession of the low-end side of the Gulf of Mexico jackup market, which could give the company potential leverage to ratchet up dayrates (currently near cash costs), according to Raymond James analysts J. Marshall Adkins and Collin Gerry.
"Standard jackups in the Gulf of Mexico are more than $50,000 per day, while mat rigs are at $35,000 per day. This could translate into $5,000 to $10,000 per day of upside for the two companies' combined 20 rigs, or around $50 million of upside. Seahawk's bloated Selling, General & Administrative Expense (SG&A) could be slashed by perhaps $20 million," the analyst note in a Feb. 14 research report.
The analysts peg the deal metrics at 22.3 million shares of Hercules at $3.36 per share as of Feb. 11, or $80 million, in addition to the $25 million cash payment. This equates to an approximate 15% discount to the HAWK closing price on Feb. 11.
The $25 million will be used primarily to pay off Seahawk's Debtor-in-Possession loan, which the company secured in connection with its bankruptcy filing to support the business and provide liquidity prior to the closing of the transaction. The amount of Hercules Offshore common shares issued will be proportionally reduced at closing, based on a fixed price of $3.36 per share, if the outstanding amount of the DIP loan exceeds $25 million, with the total cash consideration not to exceed $45 million.
John T. Rynd, president and chief executive, Hercules Offshore, says, "We believe that the strategic rationale and value proposition of this transaction are very compelling for our shareholders. This is a unique opportunity to acquire assets at an attractive price, and we expect significant synergies once they are added to our rig fleet. Furthermore, the structure and terms by which we are acquiring these assets will provide benefits to our shareholders, allowing us to fully dedicate our time to operate these assets to their maximum potential. We will have the ability to operate a significantly larger fleet of rigs for our customers, with a small amount of incremental cost."
The deal is expected to close during second-quarter 2011. Jefferies & Co. has provided a fairness opinion to the Hercules Offshore board; and Andrews Kurth LLP and Thompson & Knight LLP are legal advisors to Hercules Offshore.