Transocean Inc. and GlobalSantaFe last Monday announced that their boards of directors approved a cash-and-stock deal valued at roughly $50 billion to combine the two leading offshore oil and natural gas drilling contractors.

Based on July 20 closing prices, the estimated enterprise value of the combined company (market capitalization plus debt) would be approximately $53 billion, the Houston-based drilling contractors said. The combined company, to be known as Transocean Inc., will retain principal offices in Houston and trade on the New York Stock Exchange under the symbol RIG.

The marriage of the two companies is being billed as a merger of equals, with the board of directors of the combined company equally split between Transocean and GlobalSantaFe, and the top positions of the new company also equally divided.

The transaction includes a stock and a cash payout. Under the terms of the agreement, Transocean shareholders will receive $33.03 in cash and 0.6996 shares of the combined company for each share of Transocean that they own. And GlobalSantaFe shareholders will receive $22.46 in cash and 0.4757 shares of the combined company for each share of GlobalSantaFe that they own.

The total cash to be paid to both companies’ shareholders will be $15 billion, which will be funded through a bridge loan due one year after closing. Transocean said it has received a commitment letter from Goldman, Sachs & Co. and Lehman Brothers to provide the financing.

Stock in both companies jumped immediately following the announcement of the merger. Transocean’s stock closed at $115.96 last Monday, up $5.99/share from the close of trading on Friday (July 20). GlobalSantaFe’s stock rose 4.8% ($3.59) to close at $78.33. The stock for both companies were trading at slightly reduced levels at the close of last week. The merger, which is subject to the approval of the shareholders of both companies, regulatory agencies and the receipt of funds under committed financing, is expected to close by the end of the year.

The merger comes as the demand for offshore drilling equipment is at a high level in the Gulf of Mexico and other parts of the world. The combined company will have a global fleet of 146 rigs to respond to the tight market for drilling in deep waters. Transocean and GlobalSantaFe together have a backlog of $33 billion, they said.

Robert L. Long will continue as chief executive officer of Transocean following the merger. “This transaction will enhance our high-end floater fleet, including five newbuild ultra-deepwater units, while growing our position in the worldwide jackup market,” he said.

GlobalSantaFe President Jon A. Marshall will serve as Transocean’s president and chief operating officer after the completion of the merger. “The combined company will have a broader customer base, particularly with the increasingly important national oil companies, greater exposure to the growing deepwater business and increased, low-risk organic growth prospects from the combined deepwater newbuild program,” he said.

©Copyright 2007Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.