Two of the world’s seismic giants — TGS and PGS —have decided to merge via an all-share transaction valued at Nkr9.3 billion ($863.74 million) into what the companies describe as a “stronger and more diversified geophysical company and data provider to the energy value chain”, driven by technology and innovation.
The combined entity will offer a robust position in all verticals such as multi-client data, streamer data acquisition, ocean bottom node (OBN) data acquisition, imaging and new energy data, a statement said.
The deal comes three years after TGS failed in a bid for PGS’ seismic library.
SEB analyst Kim Uggedal told Upstream’s sister title DN: “Although the agreement looks sensible from an industrial perspective, we would argue that the PGS shareholders receive a generous payment.”
The merger will help improve economies of scale, preliminary estimated at more than $50 million annually in cost synergies, a statement said.
Strong institutional shareholders
Both companies have strong institutional shareholder backing from major banks in particular, rather then high net worth individuals dominating the investor list.
Goldman Sachs funds are the largest investors in PGS with over 15% of the company, DNB Global, MH capital and HSBC also having notable shareholdings.
The Norwegian pension fund Folketrygdfondet is the leading shareholder in TGS, with an 11.5% stake ahead of State Street Bank and Trust Comp of the US with 4.2%
The all stock deal will see PGS shareholders get 0.06829 TGS ordinary shares for each PGS share they control.
Shares in TGS climbed close to one-tenth during morning trading in Oslo, with PGS up over 4% during the same period.
Following completion of the transaction, TGS and PGS shareholders will own about two thirds and one-third of the combined company, respectively, on the basis of the share capital of each of the companies as of 15 September 2023.
Definitive merger agreements are expected to be entered into in next month with closing of the transaction expected during the first half of 2024.
TGS said that this merger will not only mitigate supply chain risks but also enhance economies of scale and efficiency, ultimately augmenting the value proposition for clients.
In the realm of multi-client services, the combined company will offer a global seismic library with data covering active basins in both the western and eastern hemispheres.
For streamer acquisition, it will operate a fleet of seven 3D data acquisition vessels, and in OBN acquisition, the combined entity will harness about 30,000 mid and deep-water nodes.
Deal a ‘major milestone’
Regarding imaging services, the merged company will provide robust solutions to in-house and external customers, seamlessly integrating on-premises and cloud-based high-performing computing services.
Additionally, it foresees substantial growth opportunities in new energy, including complementary technology offerings for carbon capture and storage and offshore wind.
TGS chief executive Kristian Johansen said: “We are excited to announce a merger with PGS, completing a major milestone of building a fully integrated and robust global energy data provider.
“Our clients will benefit from scale, a unique technology portfolio, and premier service quality.
“Bringing together two distinct yet complementary companies positions us even better for a continued upcycle in the energy sector.”
PGS chief executive Rune Olav Pedersen echoed this sentiment, emphasising the value this merger brings to all stakeholders.
PGS chairman Walther Qvam highlighted the creation of a full-service geophysical company with a strong balance sheet, enabling investments in core activities and the rapidly growing new energy sector.
The combined company will have a fully diluted market capitalisation of $2,616 million and a net interest-bearing debt (NIBD) of $649 million (as of this year’s second quarter), resulting in a market capitalisation to NIBD ratio of 80:20.
With the strength of their combined balance sheets and cash flows, the company aims to optimise its capital structure, efficiency and costs.
As part of its financial strategy, the merged company intends to refinance PGS’ $450 million senior notes and term loans upon the first call opportunity. TGS is committed to maintaining a conservative balance sheet profile.
The transaction remains subject to various conditions, including due diligence by both parties, finalising and executing a definitive merger plan, regulatory approvals, consent, statutory waiting periods and approval by extraordinary general meetings in both TGS and PGS, with at least a two-thirds majority.
SpareBank 1 Markets is serving as the financial adviser, and Schjodt is acting as the legal adviser to TGS. Pareto Securities is acting as the financial adviser, and Advokatfirmaet BAHR is the legal adviser to PGS.
The full merger plan is expected to be published in October.