Santa Fe, Global Marine To Create Second Largest Offshore Driller

In a $3 billion stock swap, Santa Fe International Corp. agreed last week to purchase Global Marine Inc., which will create the world's second largest offshore oil and natural gas driller, behind Transocean Sedco Forex. The merger of the equals gives them more flexibility to serve the marketplace and provide equipment for customers anywhere in the world, especially with many of their shared customers now merged.

The new company, to be called GlobalSantaFe, would trade on the New York Stock Exchange under the ticker symbol "GSF," and would have a market value of approximately $6 billion. Headquartered in Houston, GlobalSantaFe would operate more than 100 rigs, with its own fleet of 59 offshore and 31 land drilling rigs and 13 rigs operated for others. It also would provide drilling management services, including turnkey and project management.

"This transaction, which is a merger of equals in every sense of the word, brings together two of the most talented and respected management teams in the industry," said Bob Rose, CEO of Global Marine, who will serve as chairman of the new company. He said the two companies shared a common operating philosophy and culture, and the new company would be a "larger, more competitive force in a rapidly consolidating sector."

Sted Garber, now Santa Fe CEO, would assume the same position within GlobalSantaFe, while Gordon Anderson, current Santa Fe chairman, would serve on the 14-member board of directors. The board would be equally represented by the two companies. Kuwait Petroleum Corp. (KPC), which owns approximately 37% of Santa Fe through its wholly owned subsidiary SFIC Holdings (Cayman) Inc., would continue to own approximately 43.5 million shares, about 18.7% of the new company. KPC has already approved the transaction, along with the two companies' boards of director.

"Shareholders will benefit from owning a company with enhanced operational scale and expertise," said Garber. "Our state-of-the-art drilling fleet, along with the largest heavy duty harsh environment and premium jackup fleets, will enable us to meet the increasing demands of our diverse customer base."

Santa Fe, now headquartered in Dallas, and Global Marine, based in Houston, generated combined revenues of more than $2 billion for the 12 months to June 30, however, their stock prices have fallen in recent months because of the slowing worldwide economy and falling U.S. natural gas prices. Since mid-May, Global Marine's stock price has fallen more than 48%, and Santa Fe's has fallen more than 35%. Global Marine is a big player in the Gulf of Mexico, while Santa Fe has more overseas exposure.

Under terms of the transaction, Global Marine stockholders will receive a fixed ratio of 0.665 shares of newly issued GlobalSantaFe stock for each share of Global Marine, and will own approximately 50.6% of the combined company. Gains on the transaction will be taxable to Global Marine shareholders. The transaction will not be taxable to Santa Fe shareholders, who will retain their existing shares and will own approximately 49.4% of the company. GlobalSantaFe will have approximately 233 million shares outstanding. The transaction is expected to be "modestly" accretive to earnings, and "substantially" accretive to GlobalSantaFe's cash flow in 2003.

Dain Rauscher Wessels analyst Roderick D. McKenzie Jr. said the merger "offers a longer-term synergy in that Santa Fe's international infrastructure provides Global Marine with access to international markets it is not present in. With the Gulf of Mexico historically being a volatile market, this should provide greater revenue stability than Global Marine could have realized on its own. Additionally, the Gulf of Mexico market presence offered by Global Marine should help Santa Fe access this market for its new-build jackups and semi-submersibles."

The deal further consolidates the drilling operator market, which will offer fewer choices to producers. Last year, Transocean Sedco Forex reached a definitive agreement to acquire R&B Falcon Corp. in a 100% stock transaction for a total cost of $8.8 billion (see NGI, Sept. 4, 2000), which created the largest offshore driller. And in May, Pride International agreed to buy Marine Drilling Cos. for $1.92 billion in an all-stock deal to be called Pride International (see NGI, May 28), which created the third largest offshore driller.

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