Nabors Industries Ltd., which owns and operates the world's largest land-based drilling rig fleet, agreed Monday to acquire Houston-based Tesco Corp. in a stock-for-stock transaction to expand its global rig equipment and drilling automation arm.
Once completed, rig equipment subsidiary Canrig would be combined with Tesco's complementary rig equipment manufacturing, rental and aftermarket service business. Houston-based Tesco also operates a global tubular services business that would benefit Nabors Drilling Solutions.
The deal, set to close by the end of the year, is valued at around $215 million. The transaction values Tesco common stock at $4.62/share, a 19% premium to its closing price last Friday on Nasdaq.
"The addition of Tesco to our company represents another step forward for both our rig equipment and Nabors Drilling Solutions business,” said CEO Tony Petrello. “Tesco is respected for the quality of their product offerings and aftermarket service levels. I am eager to realize the benefits to our combined customers and shareholder groups that this combination will provide.”
By combining complementary products, tools and technologies, Nabors expects to offer customers more fit-for-purpose products, services and solutions. The expanded capability would enable the company to further improve operational efficiency, accelerate and scale development of equipment on its new generations of rigs, as well as upgrade older classes of rigs.
"With this transaction, Tesco will now have an expanded platform, which will allow for acceleration of its strategy and increase the potential for market share gains around key industry trends,” said Michael W. Sutherlin, Tesco’s nonexecutive chairman. “The combination will provide significant value to Tesco shareholders by participating in a stronger and broader offering of complementary rig equipment product lines and tubular services."
Tesco CEO Fernando Assing said the combination also would “further reinforce Nabors’ position as a leading rig equipment and drilling automation provider…The new expanded platform also creates significant career opportunities for Tesco's employees as part of a much larger international organization."
The transaction accelerates a strategy Petrello laid out at the annual analyst day last November. And the Tesco deal builds on Nabors’ plan to extend its Lower 48 expertise in North America. Nabors and Weatherford International plc earlier this year agreed to combine their enhanced oil and natural gas drilling solutions for customers in the Lower 48 states. Weatherford is providing well construction expertise, managed pressure drilling (MPD) solutions, directional drilling capabilities and drilling hardware, as well as associated software applications and engineering personnel. Nabors in turn is throwing in its fleet of MPD-ready "SmartRigs" and land-optimized measurement-while-drilling systems, as well as its performance drilling software applications, automated rig equipment and proprietary control systems.
“Several years ago we concluded that the drilling rig will serve as the delivery platform for future rig services,” Petrello said. “The early success of our service integrations efforts are substantiating this strategy. Now, with the largest land drilling fleet and with the automation features of our ‘Rigtelligence’ operating system, Nabors is uniquely positioned to further deploy Tesco's premium casing running tools and automation technologies globally.”
First-year operating synergies with Tesco are expected to approach $20 million, with full run-rate operating synergies of $30-35 million, Petrello said
“In addition, we expect to realize capital savings from facility rationalization and the planned build out of our casing running operation. We are excited about Tesco's respected management team and highly skilled employees joining Nabors and helping to deliver the benefits of this combination to our customers and shareholders."
The transaction has been approved by each board. Intrepid Partners served as Nabors’ financial adviser, while Milbank, Tweed, Hadley, & McCloy LLP and Stikeman Elliott LLP served as legal advisers. J.P. Morgan Securities LLC served as Tesco’s financial adviser while Norton Rose Fulbright served as legal adviser.