U.S. engineering company McDermott, whose pending merger with CB&I is due to be voted on in early May, has rejected a takeover offer from the UK-based Subsea 7.
Subsea 7 confirmed on Monday that it made a proposal to the board of directors of McDermott on April 17, 2018, to acquire the entire issued share capital of McDermott. This would call for the cancellation of the merger with CB&I.
Subsea 7 proposed to acquire McDermott common stock for $7 per share, payable entirely in cash or up to 50% in Subsea 7 stock and the balance in cash. This proposal represents a premium of 16% to the latest closing share price of McDermott on April 20, 2018, and a premium of 15% over the volume weighted average share price of McDermott over the previous 20 trading days.
According to the New York Times, the value of the unsolicited offer by Subsea 7 is around $2 billion.
The proposal letter sent by Subsea 7 to McDermott stated that Subsea 7 would consider increasing its proposed price upon further assessment of McDermott’s business through discussions with McDermott management.
Additionally, for any stock consideration, Subsea 7 added it was open to discussing listing options for the shares of the combined company.
Subsea 7 underlined its belief that its proposal was superior to McDermott’s proposed combination with CB&I, and the proposal was subject to the termination of McDermott’s pending transaction with CB&I.
On April 20, 2018, the board of directors of McDermott rejected Subsea 7’s proposal.
Jean Cahuzac, Subsea 7’s Chief Executive Officer, stated, “Given the attributes of the proposed transaction and our stated ability to further enhance our proposed terms, we encourage the McDermott board of directors to reconsider this compelling opportunity to combine two complementary businesses.”
He added: “Our proposal provides equity upside in a company with a robust financial position, as well as a meaningful premium. We see significant merit in such a transaction for all shareholders, and with our financial and legal advisors continue to be open to discussions.”
Subsea 7 also believes there would be significant benefits to all pro forma shareholders from a combination of the businesses, including strengthened capabilities, growth prospects, synergies, and financial flexibility.
Subsea 7’s proposed transaction would not be subject to any financing conditions or Subsea 7 shareholder approval. It would be subject to regulatory and other customary closing conditions.
CB&I merger hurdles cleared
It is worth reminding that McDermott’s merger with CB&I is scheduled to be completed in the second quarter of this year. All regulatory hurdles have already been cleared and shareholders from both companies will vote on the proposed merger on May 2.
Ahead of the vote, the merger was challenged by a company which owns nearly 2% of McDermott, claiming that the transaction as currently structured was materially less attractive than what management negotiated.
On the other hand, an independent proxy advisory firm recently recommended that McDermott stockholders vote “FOR” each of the proposals relating to the combination with CB&I, calling the industrial logic of the deal solid.
The two companies have already chosen their new leadership and organizational structure with David Dickson, current CEO of McDermott, set to take that role in the new company as well.
Subsea 7 ‘undervalued’ McDermott
Later on Monday, McDermott confirmed that its board had rejected an unsolicited, non-binding proposal received from Subsea 7.
McDermott said that its board carefully reviewed and considered the proposal in consultation with its outside financial advisors and legal counsel. The board concluded that the proposal was not in the best interests of the company or its stockholders as it significantly undervalued McDermott and was not an attractive alternative to the proposed combination with CB&I. Accordingly, the company’s board rejected the proposal.