Houston engineering and construction giant McDermott International Inc. announced preliminary plans as it prepares to complete a merger with crosstown CB&I on Monday only days after Subsea 7 SA launched a hostile takeover bid, but only for McDermott.
McDermott and CB&I, formerly Chicago Bridge & Iron, agreed in December to combine in an all-stock transaction worth an estimated $6 billion. The oilfield services giants, each a leader in engineering, procurement, construction and installation, or EPCI, combined would have proforma revenue approaching $10 billion and a backlog estimated at $14.5 billion.
The combination, scheduled to be completed in May, expects to retain the McDermott brand and use McDermott’s management model to provide solutions for oil and gas operators from the wellhead to the storage tank.
“The name McDermott provides a strong foundation for the combined company and a platform on which we can build our future together,” said McDermott CEO David Dickson, who is to lead the combined company. “Together, McDermott and CB&I will have the integrated technology, engineering expertise, unmatched experience and global reach to design and build the energy infrastructure of the future.”
CB&I’s business, which provides process technology licenses, associated engineering services, catalysts and engineered products would use the Lummus brand name. Lummus also offers process planning, project development services and aftermarket support primarily for the petrochemical and refining industries.
CB&I’s tank business also keep its current branding, having built more than 46,000 storage structures in 100-plus countries on all seven continents.
However, the merger still requires approval by McDermott and CB&I stockholders. And European-based Subsea 7 wants to have a say. Subsea’s unsolicited offer last week was to acquire all of McDermott’s common stock for $7.00/share, payable entirely in cash or half Subsea stock, half cash.
One caveat: McDermott has to drop its merger with CB&I. McDermott’s board said thanks, but no thanks.
“The proposal was subject to, among other things, the completion of due diligence, the termination of McDermott’s business combination agreement with CB&I and regulatory approvals,” McDermott said Monday.
The board rejected the proposal after a review and in consultation with outside financial advisers and legal counsel. Subsea’s offer is “not in the best interests of the company or its stockholders as it significantly undervalued McDermott and was not an attractive alternative to the proposed combination with CB&I.”
McDermott management said it is “fully committed to completing the transformational combination with CB&I. The company’s board believes the combination with CB&I is in the best interest of McDermott and its stockholders, and has reaffirmed its recommendation that McDermott stockholders support the transaction.”
McDermott and CB&I already have received “all necessary regulatory approvals and have completed a key financing milestone with the closing of the notes offering.”
Additionally, independent proxy advisory firms Institutional Shareholder Services Inc. and Glass, Lewis & Co. LLC recommended that McDermott stockholders vote in favor of the CB&I combination, management noted.
McDermott’s special meeting of stockholders is scheduled to be held on May 2.