Technip, FMC Target Oil Services 'Big League' with Merger Deal
France's Technip on Thursday announced an all-stock merger with U.S. rival FMC Technologies, as it seeks to offset weaker spending on exploration and production by cash-strapped oil companies.
The new group, to be domiciled in London, would have combined revenue of $20 billion and the merger is expected to deliver annual pretax savings of at least $400 million by 2019, as well as boost earnings per share significantly, the companies said in a statement.
Lower energy prices are driving consolidation in the oil services sector, hit by an oil supply glut that has been weighing on exploration and production.
Shares in Technip, which builds oil rigs and refineries and supplies pipelines for the offshore industry with equipment often made by FMC, closed up 6.3 percent in Paris, the biggest gainer on the CAC 40 index of blue chips, while FMC fell 2.75 percent in New York.
Analysts said the new group could one day rank alongside the likes of oil services companies Schlumberger and Halliburton.
"The sector slowdown is so bad companies must act to achieve further cost cutting," Bernstein analyst Nicholas Green said in a note to investors.
"M&A of this nature points to Technip's vaulting ambition to step into the 'big league' of global oil services," he wrote.
However, the new entity will have a complex structure, with three main headquarters, in Paris, Houston and London, where it will be domiciled.
Technip CEO Thierry Pilenko dismissed suggestions at a press conference in Paris the move to London had anything to do with so-called "tax-inversion" deals, where companies use mergers to move their legal headquarters to lower-tax jurisdictions, a practice which has caused an outcry in the United States.
"We didn't build this for tax reasons," he said. "Choosing London was firstly about having a neutral territory for both companies."
The French government, which holds a stake of about 5.2 percent, indicated it would ensure the company and its management teams maintained a strong presence in France.
"There will be very clear commitments about preserving a foothold in France over the long term," a source at the economy ministry told Reuters, adding that the government, via the BPIFrance state-owned bank would remain a long-term shareholder.
Under the terms of the deal, each Technip share will be converted into two shares of TechnipFMC, and each FMC Technologies share will be exchanged for one share of TechnipFMC, with each company's shareholders owning close to 50 percent of the combined company.
Pilenko will serve as executive chairman of TechnipFMC, while FMC Technologies' President and Chief Operating Officer Doug Pferdehirt will be CEO, the companies said. The transaction is expected to close early in 2017.
Last year, the two companies formed a joint venture, Forsys Subsea, aimed at reducing the cost of subsea oilfield exploration.
Technip has a market value of about $6.2 billion, compared with $6.5 billion for FMC Technologies. Technip has annual revenue of $13.5 billion, more than double that of FMC Technologies.
(By James Regan and Michel Rose; Additional reporting by Benjamin Mallet and Bate Felix; Editing by Mark Potter and Alexandra Hudson)
(By James Regan and Michel Rose; Additional reporting by Benjamin Mallet and Bate Felix; Editing by Mark Potter and Alexandra Hudson)