More M&A In The Oil Patch: FMC Tech, Technip Combine

Oilfield service players FMC Technologies Inc. (NYSE:FTI) and Technip (PA:TECF) SA (OTC:TKPPY) are merging in an all-stock deal of equal proportions, in a sign that consolidation is picking up in the energy space. The tie-up – which should close early next year – would combine Houston-based FMC Technologies, a major underwater energy equipment maker, with Paris-based Technip, an offshore oil and gas field developer.

The merged organization will do business as TechnipFMC (stock symbol not stated). Based on May 18 closing prices, the joined company will be worth $13 billion boasting of 2015 pro forma revenue of $20 billion, EBITDA of $2.4 billion and total order backlog – as of Mar 31, 2016 – of $20 billion.

In 2015, the two companies, both carrying Zacks Rank #3 (Hold), entered into an agreement to form a 50/50 joint venture, Forsys Subsea, aimed at offering complete packages for subsea oilfield exploration at a reduced cost.

Low Oil Driving Sector Consolidation

Oil’s horror show has seen black gold’s price come down from some $110 per barrel in mid-2014 to around $45 now, in between falling to a 12-year low of $26.21 in Feb. The commodity’s collapse has threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and narrowing profit margins.

Oilfield services companies have been some of the hardest hit by diving commodity prices as top energy companies have resorted to spending cuts (particularly on the costly upstream projects) owing to lower profit margins. This, in turn, means cancellation or contract renegotiation for equipment suppliers like FMC Technologies and Technip. In fact, the latter’s stock has fallen about 20% in the past year, while FMC Technologies is down 30%.

In these trying circumstances, merger and acquisition deals have helped service providers to cut their average costs and benefit from mutual technical expertise exchange.

Terms of the Deal

Under the terms of the transaction, Technip shareholders will receive two shares in the new business for each share they hold, while each FMC Technologies share will be converted into one share of TechnipFMC. Post merger, Technip investors will own around 50% of the combined firm while FMC Technologies shareholders will own the remaining half.

The combined company will maintain dual headquarters in Houston and Paris. FMC Technologies’ President and CEO Doug Pferdehirt will head the management team of TechnipFMC as CEO. Technip CEO Thierry Pilenko will be Executive Chairman.

Benefits

The combination of Technip and FMC Technologies, two of the best known names in oilfield services, will create an energy technology powerhouse with revenue more than Baker Hughes Inc. (NYSE:BHI) and the might to take on the top dogs in the oilfield services group – Schlumberger Ltd. (NYSE:SLB) and Halliburton Co. (NYSE:HAL) .

Uniting the complementary skills and capabilities of both firms, TechnipFMC is also expected to realize at least $400 million per year in pretax cost savings by the end of year three with impressive growth rates across the board - subsea, surface and onshore/offshore.