ShawCor stock soars as sale seen luring parade of buyers
TORONTO (Reuters) - Shares of ShawCor Ltd SCLa.TO soared on Thursday after the company, which has a dominant position providing niche pipeline services to the oil and gas industry, said it was exploring the possibility of putting itself up for sale in a deal that could fetch C$3 billion ($3.05 billion) or more.
Analysts expect an array of both strategic buyers and private equity firms to be attracted by the Toronto-based company.
ShawCor owns seven business units that provide pipeline-coating, corrosion-protection, pipe-inspection, tubing and other services to offshore oil and gas drillers as well as a range of other companies across the energy industry spectrum.
Demand for its specialty products and services has been strong, and the company's order backlog has more than doubled in the past 12 months. At the end of June, ShawCor had an order backlog of C$749 million, a record for the company.
ShawCor said on Wednesday it had engaged Credit Suisse Canada to explore a sale of the company after Virginia Shaw, the company's chairwoman and controlling shareholder, told the board that she is prepared to consider a sale of her shares as part of a sale of the company.
Shaw owns more than 90 percent of the company's Class B shares, giving her more than 60 percent of the voting interest.
ShawCor's class A and class B shares closed at C$35.08 on the Toronto Stock Exchange on Wednesday, valuing the company at about C$2.5 billion.
Its shares were up 20 percent at C$41.98 at midday on Thursday as investors bet that a sale could fetch C$3 billion or more.
"We expect interest in the company to be high given its exposure to subsea infrastructure and ShawCor's global leadership position in offshore pipe-coating," said RBC Capital Markets analyst Dan MacDonald in a note to clients.
MacDonald sees ShawCor catching the eye of large oilfield services companies, pipe manufacturers, companies involved in the offshore engineering, procurement and construction space, along with private equity players tempted by ShawCor's clean balance sheet and strong free cash flow.
ShawCor ended the second quarter with about C$3.30 per share in cash on its balance sheet and no bank debt, leaving a clean slate for any buyer to potentially lever, MacDonald said.
TD Securities analyst Scott Treadwell said he sees a greater than 50 percent chance of the sale process succeeding. He raised his price target on the shares to C$47.
"We believe that any successful bid would not only put a premium on short-term growth, but would also likely be driven by ShawCor's strong competitive position in a lucrative and growing market segment," Treadwell said in a note to clients.
"Given ShawCor's dominant position in the international pipe coating industry, especially in the higher growth offshore market, strong brand name, and strong financial track record, we believe that there will be numerous parties interested," Cormark analyst Sarah Hughes said in a note to clients.
The likelihood of a sale pushed Hughes to raise her share-price target for ShawCor to C$50 from C$42.50. Hughes sees General Electric (GE.N), National Oilwell Varco (NOV.N), Cameron International (CAM.N) and FMC Technologies (FTI.N) among others, as likely suitors.
"All these players have been active in the M&A space over the past few years, have completed or announced large transactions and have the financial capacity to take a run at ShawCor," Hughes said. "In addition, we believe that private equity could also have an interest in the company."
Tenaris SA (TENR.MI), Vallourec SA (VLLP.PA), Saipem SpA (SPMI.MI), Aker Solutions ASA (AKSO.OL), Technip SA (TECF.PA), Schlumberger NV (SLB.N) and Halliburton Co (HAL.N), were some of the other possible buyers listed by analysts.
Stifel Nicolaus analyst Lara King, however, cautioned that interest in ShawCor might be limited by concerns about the reaction of competition regulators and customers.
"In our view, given ShawCor's leadership position in pipe coating, from the standpoints of both competition bureaus and the concerns of its customers, ShawCor's competitors may not be suitable," King said in a note to clients.
"Further, pipe mills and the large energy E&Cs (engineering and construction companies), who are often ShawCor's customers, would have to be mindful of the dynamic between their peers," she said.
(Reporting by Euan Rocha; Editing by Janet Guttsman; and Peter Galloway)