Houston-based FMC Technologies Inc., one of the leading subsea service providers in the world, as well as a surface technology provider, is merging with energy engineering and construction giant Technip, based in Paris, in a transaction valued at $13 billion.
The tie-up, said the partners, would create a "leader in subsea, surface and onshore/offshore, driven by technology and innovation." The combined company, to be renamed TechnipFMC, had combined 2015 revenue of $20 billion and a $20 billion backlog at the end of March.
The transaction would combine the two workforces and bring together more than 49,000 people, building on an existing alliance and joint venture created last year, Forsys Subsea (see Daily GPI, July 6, 2015). Technip now employs 32,500 people and operates in 45 countries, while FMC, which employs 16,500, operates 29 production facilities and services bases in 18 countries.
"Our alliance has shown that as customers evaluate solutions, they are involving us in the process earlier and to a greater degree than ever before," said FMC COO Doug Pferdehirt, who is to serve as the new CEO. "The more they seek our recommendations and new products, the more we differentiate ourselves from the competition. This transaction will allow us to deliver even greater benefits to our customers through a broadened portfolio that provides a unique set of integrated technologies and competencies that are underpinned by a history of developing rich partnerships and creating customer success."
The merger, expected to be completed in early 2017, would result in five business units covering surface, subsea services, products, subsea projects and onshore/offshore. Surface and subsea services would be headquartered in Houston, while the other units would be headquartered in Paris.
Once merged, most of TechnipFMC’s revenue would be from international oil companies (38%) and national oil companies (38%), with about one-quarter (23%) from independents, midstream and other oilfield service companies. The companies’ combined revenue of $20 billion in 2015 is more than No. 3 oilfield services operator Baker Hughes Inc., but less than No. 1 Schlumberger Ltd. and No. 2 Halliburton Co.
An analysis by Rystad Energy issued Thursday showed that TechnipFMC would have an expected revenue of about $17 billion in 2016.
"Within the subsea space, it will control roughly 27% of the market," able to supply "complete subsea production systems" and life-of-field services, Rystad analysts said. By comparison, Baker Hughes had revenue in 2015 of $15.7 billion and reported 1Q2016 revenue of $2.7 billion. Halliburton reported 2015 revenue of $23.6 billion, with 1Q2016 revenue of $4.2 billion.
Considered an underwater specialist, FMC would be able to "look beyond subsea," Pferdehirt said during a conference call Thursday. "We will take the same capability, the same competency that we are now being able to demonstrate to our customers, and we can take that to surface or, if you will, onshore. Our ability to do that by leveraging the capabilities of the broader company, the surface technologies of FMC Technologies and the onshore/offshore technologies, and knowledge and project management from Technip will allow TechnipFMC to have a unique offering on land as well as in subsea."
Technip CEO Thierry Pilenko, who is to chair the merged company, told analysts that the transaction was “not driven by hydrocarbon price, nor was the original creation of the alliance and joint venture. When we originally began to talk, it was a very different market environment. We came together back at the alliance and joint venture days because we had a shared and common vision between our companies.
“We realized that there was significant savings and improved project economics and improved returns for our customers that could be realized by having a simplified subsea architecture...The same holds true today. What we have learned and we have experienced together is the fact that there's more that we can do. And it's not only more that we can do in the upfront, fuel, front-end engineering and design, it's more that we can do through seamless integrated execution. So that creates the opportunity."
The merger would improve project execution, he said.
"What we'll be able to do now by completely redesigning the equipment to take into consideration installability creates a unique set of opportunities that...as we come together as one company, we'll be able to recognize things that would change the installation process or change the fundamental way that our equipment is designed would be difficult to do if you weren't look at it from a holistic opportunity."
Subsea is the backbone of FMC's business, but its surface technologies/onshore unit provides drilling, completion/production wellheads and fluid control systems, including fracture stacks, flowback services, separation systems and metering systems. Within the onshore fluid control unit, FMC treats iron and offers temporary pipe restraints, pumps and fluid ends.
The energy infrastructure business offers measurement solutions designs products and systems used to measure and control the flow of liquids and gases. It also offers loading systems to transfer petroleum, liquefied natural gas and chemicals products, as well as systems to separate oil, gas, sand and water in surface, subsea and topside applications.
Technip's project management services also are weighted to the subsea, with field architecture and integrated designs its forte. For the onshore/offshore market, the operator provides engineering, procurement and construction services, as well as technology and project management.
The companies, which plan an all-stock merger, entered into a memorandum of understanding (MOU) to execute a definitive business combination agreement. Under the terms of the MOU, Technip shareholders would receive two shares of the new company for each Technip share and FMC shareholders would receive one share for each FMC share. Each company's shareholders would own about half of the new combination.
The market is “challenging,” but during downtimes there are big opportunities, FMC CEO John Gremp said during the call. FMC had announced earlier this month that Pferdehirt was taking over as FMC CEO in September with Gremp's retirement.
The idea is to "engage with customers earlier in the development process to design, deliver and install more comprehensive solutions, redefining the production and transformation of hydrocarbons,” Pilenko said.
The merger would allow for a "simplified, go-to-market strategy that spans from individual products or services to fully integrated solutions," executives said. "With a single interface to ensure seamless execution, the combined company will significantly reduce the cost of development for customers for both new and existing fields."
The combined leverage is designed to "accelerate technology innovation, integrate and improve project execution and reduce costs for customers. It will expand on competencies in digital life-of-field and data management services to reduce maintenance and enhance production."
The combined company expects to achieve pretax cost synergies of $200 million in 2018 and "at least" $400 million in 2019 and thereafter. The cost synergies primarily would come from supply chain efficiencies, real estate, infrastructure optimization and other corporate/organizational efficiencies. In addition, revenue synergies are expected to be achieved from the integrated subsea project execution model.
Pilenko addressed concerns about potential antitrust issues, something that led Halliburton and Baker Hughes to call off their mega-merger (see Daily GPI, May 2).
"Obviously, we have to go through the normal process of antitrust filing and so forth," Pilenko said. "But...we are not competitors, we are very, very complementary, and that's true. I mean, we see it every day when we prepare bids for customers in the subsea space...It takes time to go through this filing, but clearly, we don't see a problem."
The board would consist of seven members designated by FMC, including Pferdehirt, and seven designated by Technip, including Pilenko. The heads of the business units "have been identified and will be communicated in due course along with the other senior functional and operational executives of the company," executives said.
Operational headquarters would be in Paris, overseen by Pilenko, while Pferdehirt would helm the business from Houston. The new corporation would be domiciled in London, where Forsys Subsea is headquartered. The global Integrated Research and Development center would be in France. Once the merger is completed, TechnipFMC shares would trade on the New York Stock Exchange and on the Paris Euronext Stock Exchange.
The "ultimate success of the merger hinges on its ability to "help offshore E&P operators structurally lower their field development costs, beyond the 25-30% which Forsys has previously suggested," Tudor, Pickering, Holt & Co. said Thursday. The "near-term benefits will primarily stem from costs synergies...The long-term strategic rationale behind the deal is clear, but execution will matter more. A dearth of near-term subsea project awards is likely an added incentive to get this deal done now."