M&A

Low Oil Prices Drive Services Companies to Merge

Oil services firms FMC Technologies and Technip will merge in an all-stock transaction.
Katie Kuehner-HebertMay 19, 2016

As low energy prices have wreaked havoc on the oil-services industry, rivals FMC Technologies and France’s Technip have agreed to join forces to better compete.

Houston-based FMC and Paris-based Technip on Thursday said in a joint press release that the two would merge in an all-stock transaction, creating a company worth $13 billion. The firm will be named TechnipFMC.

“This is a compelling combination that will create significant additional value for clients and all shareholders, by expanding the success that FMC Technologies and Technip have achieved through our alliance and joint venture, to capitalize on new opportunities and drive accelerated growth,” FMC Technologies’ chairman and chief executive John Gremp said in the press release.

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Under the terms of the deal, Technip shareholders would receive two shares of the new company for each share of Technip, and FMC Technologies shareholders would receive one share of the new company for each share of FMC Technologies. When the merger is completed, expected by early 2017, each company’s shareholders would own close to 50% of the combined company.

Combined, the companies had $20 billion in annual revenue in 2015, more than Baker Hughes and approaching the size of the world’s largest oil-services companies like Halliburton and Schlumberger, according to The Wall Street Journal.

“The merger comes as the oil-services sector is being reshaped by crude prices that have fallen more than 60% in the past two years,” the WSJ wrote. “As of March, the oil industry has deferred or canceled $270 billion in projects since crude prices began crashing nearly two years ago.”

The five firms — FMC, Technip, Halliburton, Baker Hughes, and Schlumberger — have all announced cuts in some ways due to declining orders, including job layoffs, asset sales, or facility closures.

Technip and FMC said the deal would combine two companies with complementary skill sets, allowing them to cut costs by $400 million a year starting in 2019. The companies said they had combined earnings before interest, taxes, depreciation, and amortization of $2.4 billion, with an order backlog of $20 billion.

Jordan Patel at Bernstein Energy Research said the merger was a step toward solving the industry’s endemic problem of high costs.

“For every oil-service company globally, tackling existential strategic questions needs to become the defining feature of 2016,” he said in a note to clients.

Technip chairman and CEO, Thierry Pilenko, would serve as executive chairman of TechnipFMC’s board. Doug Pferdehirt, currently FMC Technologies’ president and chief operating officer, would serve as CEO of TechnipFMC.

The Board would consist of seven members designated by FMC Technologies, including Pferdehirt, and seven members designated by Technip, including Pilenko.

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