Ensco plc (ticker: ESV) and Rowan Companies plc (ticker: RDC) have entered into a definitive transaction agreement under which Rowan will combine with Ensco in an all-stock transaction resulting in a new company with an enterprise value of $12 billion.

The companies anticipate that the transaction will close during the first half of 2019, they said in a press release.

The combined company’s balance sheet is expected to have liquidity of approximately $3.9 billion, including $1.9 billion of cash and short-term investments, providing the new entity with the financial flexibility to continue investing in the fleet and innovations aimed at improving drilling efficiencies.

The agreement was unanimously approved by each company’s board of directors. Additionally, the Saudi Aramco partner to the ARO Drilling joint venture has consented to the combination between Rowan and Ensco.

Under the terms of the transaction agreement, Rowan shareholders will receive 2.215 Ensco shares for each Rowan share.

Upon closing, Ensco shareholders will own approximately 60.5% of the combined company and Rowan shareholders will have 39.5% of the outstanding shares of the combined entity.

The combined company expects to realize annual pre-tax expense synergies of approximately $150 million, with more than 75% of targeted synergies expected to be realized within one year

of closing. As a result, the transaction is projected to be accretive to cash flow per share in 2020 following an anticipated closing in the first half of 2019.

Rowan President and CEO Tom Burke, who will serve as President and Chief Executive Officer of the combined company, said, “By merging our rig fleets and infrastructure covering the world’s most prolific offshore basins, we increase our scale while maintaining a shared focus on high-specification assets that will include ultra-deepwater drillships and versatile semisubmersibles, as well as harsh environment and modern jack-ups. Rowan shareholders also benefit from the addition of significant backlog and substantial scale in ultra-deepwater operations.”

Offshore business: 82 rigs, six continents, 35 customers

  • The combination will bring together 82 rigs1 spanning six continents and collectively serving more than 35 customers, including the largest national oil companies, international majors and independent exploration and production companies.
  • The combined company’s rig fleet: 28 floaters and 54 jack-ups
  •  Within the fleet of 28 floating rigs (drillships and semisubmersibles) are 25 ultra-deepwater rigs capable of drilling in water depths of greater than 7,500 feet, with an average age of six years – establishing this fleet among the youngest and most capable in the industry,including 11 seventh generation ultra-deepwater rigs.
  • Among the combined company’s jack-up fleet are 7 ultra-harsh environment rigs

The transaction is subject to approval by the shareholders of Ensco and Rowan, regulatory authorities, and court approval pursuant to a UK court-sanctioned scheme of arrangement.

This deal is the second recent major M&A deal among offshore drillers, as Transocean (ticker: RIG) acquired Ocean Rig (ticker: ORIG) in a $2.7 billion deal last month. While Transocean only acquired 13 rigs in this deal, compared to the 23 Ensco added today, all the rigs Transocean acquired were either drillships or semi-submersibles. The overall drilling sector has seen a surge in M&A activity recently, as onshore companies are also combining. On Friday Precision Drilling (ticker: PD) acquired Trinidad Drilling (ticker: TDC) in a $1 billion deal, creating the 3rd largest U.S. land driller. If oil prices are sustained at the recent high levels further deals may be coming, as companies with strong balance sheets look to acquire debt-constrained firms.

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