Shares in offshore engineering firm McDermott International (NYSE:MDR) have soared 14.3% after the firm rejected an aggressive $2 billion USD takeover bid from rival European firm Subsea 7 (OTC:SUBCY). The bid was timed to disrupt a planned merger between McDermott and U.S. engineering firm CB&I (NYSE:CBI).
Subsea 7’s unsolicited proposal stated that the company would purchase all of McDermott’s shares for $7 per share – provided McDermott cancel its planned merger with CB&I. It was a strong offer, too; at the time of writing, it is above McDermott’s current share price of $6.88, even after this afternoon’s rise. At the closing time last Friday, McDermott shares were valued at just over $6. McDermott’s jump in value today can most likely be attributed to Subsea 7’s initial offer, which got investors excited. McDermott’s subsequent refusal suggests that the firm feels that its current industry position is a strong one, which could have further fueled a stock jump.
The deal would have made Subsea 7 the industry leader in subsea umbilicals, risers, and flowlines (SURF), propelling it ahead of current offshore engineering competitors TechnipFMC and Saipem, according to research by Rystad Energy.
The CB&I Merger
McDermott and the Chicago Bridge and Iron Company (CB&I) announced plans for an all-stock combination back in December. The transaction, valued at about $6 billion USD, would see a ‘premier’ offshore and onshore engineering firm with a broader technology portfolio. McDermott shareholders would come out with 53% of the combined entity, which would also retain the McDermott name. Meanwhile, CB&I shareholders would receive the remaining 47% while also being entitled to 2.47221 shares of McDermott for every CB&I share owned.
Subsea’s sudden unsolicited offer today certainly had – and still has – the potential to disrupt the McDermott-CB&I merger. The fact that McDermott has rejected the offer suggests, at least for now, that the original merger plans will go through.
McDermott announced its offer rejection in a statement, claiming that Subsea’s offer was “not an attractive alternative” to the CB&I merger. The offer also “significantly undervalued” McDermott, the company said. It remains to be seen whether Subsea will up the offer further, but for now, it seems that the McDermott-CB&I merger will go ahead. McDermott’s market cap is currently valued at $1.96B.
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