Driller Transocean seeks merger with smaller rival

The world’s largest offshore drilling contractor got bigger with Transocean’s announcement Monday that it will combine with GlobalSantaFe, creating a company able to drill from shallow to ultra-deep waters around the globe.

Analysts largely applauded the coupling and said more mergers could be forthcoming.

The deal, announced jointly by the Houston-based companies, includes a $15-billion cash payout to shareholders of the world’s largest contractor, Transocean Inc., and GlobalSantaFe Corp. Shareholders will also get shares in the new company, which will retain the Transocean name and trade on the New York Stock Exchange under Transocean’s symbol, RIG.

The value of the new company will be about $53 billion, including debt. The $15 billion for the cash payout will be funded through a bridge loan due one year after closing.

Transocean Chief Executive Robert Long, who will continue as CEO of the combined company, said the deal will allow the company to keep pace as the industry expands and to “assure us of a leading presence in almost every major offshore drilling province in the world.”

“We’ll also benefit from economies of scale leading to cost reduction,” Long said, which the company said could amount to $100 million to $150 million a year by 2010.

GlobalSantaFe CEO Jon A. Marshall will serve as president and chief operating officer of the combined entity, while GlobalSantaFe Chairman Robert Rose will be chairman. The two companies will be equally represented on a new, 14-member board.

Marshall said the combination gives the new Transocean a broader customer base, particularly with state-owned national oil companies, which control almost 90% of global oil reserves. It also will give Transocean greater exposure to the growing, lucrative deepwater drilling market.

The combined company will have a global fleet of 146 rigs, including harsh-environment jackups for shallower waters and ultra-deepwater drill ships. Oil companies are heading for deeper waters worldwide as the competition to find new sources of hydrocarbons intensifies.

“We like it,” Dan Pickering of Pickering Energy Partners wrote in a research note. “Bigger is better in commodity business like offshore drilling and biggest guy just did some smart stuff.”

Transocean shares rose $5.99 to $115.96 and GlobalSantaFe shares rose $3.59 to $78.33.