425: Noble Corporation to Acquire Diamond Offshore Drilling in Stock and Cash Deal

Noble Corporation will acquire Diamond Offshore Drilling in a stock and cash transaction, enhancing its fleet and customer coverage.

Summary

• Noble Corporation plc has announced a definitive merger agreement to acquire Diamond Offshore Drilling, Inc. in a stock plus cash transaction.
• Diamond shareholders will receive 0.2316 shares of Noble and $5.65 in cash per share, representing an 11.4% premium based on closing stock prices on June 7, 2024.
• Upon closing, Diamond shareholders will own approximately 14.5% of Noble's outstanding shares.
• The acquisition is expected to be immediately accretive to Noble's free cash flow per share and contribute to accelerated growth in return of capital to shareholders.
• Noble anticipates $100 million in pre-tax cost synergies annually, with 75% expected within one year of closing.
• The combined company will have a robust backlog of $6.5 billion.
• Noble intends to fund the cash portion of the transaction through new debt financing, secured via a $600 million committed bridge financing facility.
• The transaction is subject to customary closing conditions, including regulatory approvals and Diamond shareholder approval, and is expected to close by the first quarter of 2025.
• Noble's Board of Directors has approved a 25% increase in its quarterly dividend to $0.50 per share, starting in the third quarter of 2024.

Sentiment

Score: 8

Explanation: The document presents a positive outlook due to the strategic benefits of the acquisition, expected synergies, increased dividend, and strong backlog. The deal is expected to be accretive and enhance shareholder value.

Positives

• The acquisition is expected to be immediately accretive to Noble's free cash flow per share.
• The combined company will have a robust backlog of $6.5 billion, providing enhanced cash flow visibility.
• Noble expects to realize annual pre-tax cost synergies of $100 million, with 75% expected to be realized within one year of closing.
• Noble's Board of Directors has approved a 25% increase in its quarterly dividend to $0.50 per share, starting in the third quarter of 2024.
• The combined company will have a leading tier one drillship fleet.

Risks

• The transaction is subject to regulatory and shareholder approvals, which may not be obtained.
• There are uncertainties regarding the successful integration of Diamond's operations by Noble.
• The anticipated benefits and synergies of the transaction may not be realized or may not be realized within the expected time period.
• The transaction may be more expensive to complete than anticipated.
• Potential litigation relating to the transaction could be instituted against Noble or Diamond or their respective directors.
• The transaction is subject to risks related to changes in commodity prices, demand for oil and gas, and increased regulation of drilling and production.

Future Outlook

The transaction is expected to close by the first quarter of 2025, subject to customary closing conditions. Noble anticipates the acquisition will be immediately accretive to free cash flow per share and will facilitate Noble's ability to further augment our return of capital to shareholders.

Management Comments

• Robert Eifler, Noble's President and CEO, stated that the acquisition enables Noble to continue delivering superior innovation and value to offshore operators and strengthens their position with the addition of advanced drillships and a high-spec harsh environment semisubmersible rig.
• Bernie Wolford, Diamond's President and CEO, believes the combination provides Diamond shareholders with both immediate and long-term upside potential and access to Noble's robust dividend program.

Industry Context

This acquisition reflects a trend of consolidation in the offshore drilling industry, aimed at creating larger, more efficient companies with stronger balance sheets and broader service offerings. The combined entity will be better positioned to compete in the global market and capitalize on opportunities in both established and emerging regions.

Comparison to Industry Standards

• The combined company's fleet of 14 working dual BOP 7th generation drillships will comprise the leading tier one drillship fleet in the industry, positioning it ahead of competitors like Transocean, Valaris, and Seadrill.
• The average backlog on Diamond's four 7th generation drillships of approximately two years at $460,000 per day is competitive with current market rates for high-specification drillships.

Management Changes

Stakeholder Impact

• Diamond shareholders will receive a premium for their shares and have the opportunity to participate in the combined company's future success.
• Noble shareholders will benefit from increased scale, synergies, and enhanced cash flow.
• Customers will have access to a broader range of services and a more modern, versatile fleet.
• Employees of both companies will be integrated into a larger organization with potential career opportunities.

Next Steps

• Obtain Diamond shareholder approval.
• Receive required regulatory approvals.
• Satisfy other customary closing conditions.
• Close the transaction, expected by the first quarter of 2025.
• Integrate Diamond's operations into Noble.
• Realize cost synergies and enhance cash flow.

Key Dates