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Transocean Offers Double Market Value for Aker Drilling

Transocean Ltd. (RIG) agreed to buy Aker Drilling ASA for 7.93 billion kroner ($1.46 billion), its largest purchase in four years and almost double the Norwegian company’s market value as rising oil prices boost demand for drilling rigs.

The 26.50 kroner-a-share offer was unanimously approved by Aker’s board, Vernier, Switzerland-based Transocean said in a statement today. The bid represents a 98 percent premium to Aker’s share price on Aug. 12, according to Bloomberg data. More than 67 percent of Aker’s shareholders have said they will sell their stock, Transocean Chief Executive Officer Steven Newman said on a conference call.

The proposed acquisition “allows us to immediately upgrade our fleet in the increasingly tightening ultra-deepwater market segment,” Newman said.

Rising oil prices have increased exploration budgets and added demand for rigs able to operate in harsh and deepwater environments such as the Arctic and Brazil. Stricter rules after Transocean’s Deepwater Horizon rig exploded and sank in the U.S. Gulf of Mexico have also increased demand for more modern rigs and boosted costs to build new rigs.

Aker Drilling, based in Stavanger and controlled by Norwegian billionaire Kjell Inge Roekke, went public in February after a 2008 delisting to avoid a takeover by Seadrill Ltd. (SDRL) Transocean’s proposed purchase would be the biggest since its 2007 acquisition of GlobalSantaFe Corp. It follows Ensco Plc’s February bid for Pride International Inc., which was valued at $8.47 billion including debt, a 23.6 percent premium.

Good Price

“It’s a good price,” Oslo-based Jarle Sjo, a portfolio manager for Odin Offshore, which holds 1.9 million of Aker Drilling shares and accepted the bid, said in an interview. “It’s quite a positive indicator for the whole rig business to see that the industrial players have a different view on valuation than the stock market.”

Aker Drilling rose 12.85 kroner, or 96 percent, to 26.2 kroner 5:25 p.m. in Oslo. The stock had plunged to as low as 13.35 kroner this year. Transocean rose $1.65, or 3 percent, to $57.26 at 4:15 p.m. in New York Stock Exchange composite trading.

Aker Drilling owns and operates two of the world’s largest semi-submersible drilling units, the Aker Barents and the Aker Spitsbergen. The company also has two ultra-deepwater drillships being built by Daewoo Shipbuilding & Marine Engineering Co. Ltd. in South Korea.

Transocean will assume Aker Drilling’s $800 million net debt, CEO Newman said in the call.

Fair Valuation

“This bid values the four ultra-deepwater rigs at $797 million per rig, compared to our replacement estimates of $807 million,” Kim Andre Uggedal, an Oslo-based analyst with Terra Markets AS who rates Aker a “buy,” said in an interview. “It’s a fair valuation.”

Transocean used Morgan Stanley (MS) and Fearnley Fonds AS as financial advisers and Wikborg Rein & Co. as a legal adviser. Aker Drilling used Goldman Sachs Group Inc. (GS) as its financial adviser and BA-HR as legal adviser.

Aker Drilling was relisted in Oslo three years after being taken off the exchange to avoid a takeover by billionaire John Fredriksen’s Seadrill. CEO Alf Thorkildsen said this year his company was still interested in buying Aker Drilling. The two companies couldn’t agree on terms during talks at the start of the year, according to Aker ASA (AKER) CEO Oeyvind Eriksen.

Thorkildsen wasn’t available for comment when called by Bloomberg News today. Seadrill is the owner of the world’s second-largest fleet of deep-water rigs, behind Transocean.

Inviting All Drillers

Eriksen said Aker had invited “all drillers that may have an interest” in consolidation talks. Transocean first contacted Aker Drilling to discuss a merger at the beginning of the summer, Eriksen said today.

“We’ve been in dialogue with several companies, but Transocean was from the get-go the most concrete and the most interested one,” Eriksen said by telephone from Oslo. “Transocean’s offer has been accepted by over 60 percent of the shareholders, so it’s unlikely that anyone would put in a competing bid.”

To contact the reporters on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net; David Wethe in Houston at dwethe@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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