• Wednesday, 16 May, 2012

Siem takes over Subsea 7's ship

 19 November 2004 00:08 GMT

Norway's Siem Offshore is taking full control over Subsea 7, one of the world's top-three subsea construction players, by paying $200 million for Halliburton's 50% stake.
For Halliburton the move marks a final exit from the subsea construction segment and also another step away from large turnkey contracts.

According to investment bank Lehman Brothers, the sale is beneficial for the US company given the attractive price, the earnings volatility of the subsea construction business, the asset-intensive nature of the business, and the further distance from offshore lump-sum Epic contracts it provides. The Houston-based company said it would book a pre-tax gain of $115 million from the sale when completed.

Subesa 7 saw daylight in 2002 through the combination of Norwegian DSND Subsea and Halliburton's subsea activities. In many ways the combination was a lifeline for DSND Subsea, whereas many saw this as a first step for Halliburton towards divesting its subsea construction business.

Being backed by Halliburton has undoubtedly been an asset for Subsea 7 in the fierce fight for large subsea construction contracts around the world. However, the uncertainty about the future ownership of the company has not been a good selling point. Siem Offshore chairman Kristian Siem put it this way: "This acquisition eliminates any uncertainty about the future ownership of Subsea 7 and I am pleased to fulfill our long-term goal of establishing a global subsea construction company."

"Halliburton has been a good partner and we have had a very good co-operation. For the 2.5 years Subsea 7 has existed we have managed to build a good system that stands solid on its own feet without Halliburton as owner," Siem Offshore chief exectutive Magne Kristiansen said, adding that Subsea 7's clients have been informed about the agreement and none of them has reacted negatively.

However, not everyone is as convinced and one analyst said: "It remains to be seen whether the split from Halliburton will have any negative impact on Subsea 7's ability to win jobs in this market."

When the joint venture was formally established in 2002, Siem Offshore and Halliburton agreed on a three-year lock-in agreement that prevented both parties from actively marketing their share.

With this move Siem Offshore is in front of a development where 50% of the company could have ended on the open market and created a lot more uncertainty about the future.

Subsea 7 has a fleet of remotely operated vehicles, four pipeline construction yards and 14 modern, high-specification dynamically positioned ships capable of deep-water reeled and flexible pipelay, deep-water subsea construction and saturation diving.

For Siem Offshore, the transaction could serve two purposes as it will both increase the size of the company and also improve the free float rate of its shares and by that also liquidity. The acquisition is planned to be funded by a combination of share issue and debt.

Chairman Siem has already indicated that he does not intend to take part in the upcoming share issue, the size and price of which will be revealed later this week. As a result his shareholding will drop from about 64% to below 50%.

The transaction is subject to several conditions, including Siem Offshore's ability to finance the acquistion. The transaction is expected to close no later than 7 January 2005.

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