Transocean, GlobalSantaFe in merger deal

By Matt Daily and Caroline Humer

NEW YORK (Reuters) - Transocean Inc. (RIG.N), the world's largest offshore driller, said on Monday it would buy GlobalSantaFe Corp. GSF.N for nearly $18 billion, adding shallow-water drilling rigs to its deepwater fleet.

The deal, which offers no premium GlobalSantaFe shareholders, includes stock, as well as pay-out to shareholders of both companies totaling $15 billion.

The combination would expand the companies' global reach by creating a fleet of nearly 150 rigs with a market-leading role in the lucrative deepwater drilling business and a large presence in jack-up rigs that are in much demand from national oil companies seeking to develop shallow water fields.

The move by the two largest drillers by market valuation comes after months of speculation that the sector would consolidate to take advantage of the huge spending increases by oil producers, particularly for the development of offshore fields.

But bullish fundamentals and merger hopes drove stocks to record highs, making potential deals too expensive.

In order to get around those lofty prices, the companies have agreed to a stock deal, while also leveraging their combined $33 billion in contracted orders to borrow $15 billion that it will pay out to shareholders of both companies as a dividend.

"This is the type of transaction shareholders have been clamoring for," said Mark Urness, an analyst with Calyon Securities.

"They have managed to dividend-out a portion of their backlogs," Urness said.

News of the deal sent shares of Transocean up about 5.7 percent or $6.2739 to $116.24 while GlobalSantaFe shares followed along, gaining about 5.2 percent or $3.92 to $78.66.

"(The deal) highlights that there's a lot of value to be extracted," said Jerry Jordan, president and portfolio manager for Helman, Jordan Management, which has $500 million under management.

MORE DEALS ON TAP?

The deal could help open up the sector for other mergers or acquisitions as drilling and service companies seek to expand into the booming offshore segment.

"In terms of the impact on the industry, this may usher in more M&A activity in the space in order to prevent a single company from dominating," Bear Stearns analysts wrote in a note to investors.

Others in the sector that could eyed for future deals are Noble Corp (NE.N), Diamond Offshore (DO.N), Pride International (PDE.N), Rowan Co. (RDC.N) Hercules Offshore (HERO.O) and Ensco International (ESV.N).

Under the terms of the deal, Transocean shareholders would receive $33.03 in cash and 0.6996 share of the combined company for each share of Transocean they own. GlobalSantaFe shareholders would receive $22.46 in cash and 0.4757 share of the combined company for each share of GlobalSantaFe they own.