Noble, Diamond Offshore deal at reasonable premium sends both stocks higher

Diamond Offshore Drilling (DO) +10.4% in Monday’s trading after agreeing to be acquired by Noble Corp. (NYSE:NE) in a cash and stock deal valued at ~$1.6B, the latest move in the wave of consolidation sweeping the energy industry; Noble shares +5.8%.

Diamond Offshore (DO) shareholders will receive 0.2316 share of Noble (NE) plus $5.65 for each share they own, an 11.4% premium to the June 7 closing price, which investors seem to view as reasonable; when the deal closes, Diamond shareholders would own ~14.5% of Noble’s outstanding shares.

Noble (NE) said the deal will add four 7th generation drillships and one of the world’s most high-specification harsh environment semisubmersible rigs to its fleet.

The company estimated $100M in annual pre-tax cost synergies, with 75% expected to be realized within one year of closing, and said the deal is significantly and immediately accretive to free cash flow per share and will facilitate its ability to return capital to shareholders.

Noble (NE) also said its board approved a 25% boost to its quarterly dividend to $0.50/share, starting in Q3; the board will expand to include one member from Diamond Offshore (DO).

“We believe Noble’s acquisition is highly strategic, and the addition of 12 offshore floaters is expected to strengthen the company’s revenue and cash flow visibility through the long-duration offshore upcycle,” Evercore ISI analyst James West writes.

Other oilfield services companies (OIH) perceived as potential M&A targets also show strong gains, including Tidewater (TDW) +14.3%, Cactus (WHD) +13.3%, Valaris (VAL) +8.9%, Seadrill (SDRL) +6.1%, Transocean (RIG) +5.3%.