Valaris (VAL) +3.7% in Monday’s trading, as shares of offshore drilling contractors rise broadly alongside crude oil prices, even as BTIG Research downgraded Valaris to Neutral from Buy, as the company’s stock price has climbed 40% since the announcement one month ago of Transocean’s (RIG) $5.8B acquisition offer that would create the world’s largest offshore floater fleet.
The combined pro forma entity will have ~42 floating rigs, giving Transocean (RIG) the world’s largest floater fleet, and Valaris’ (VAL) 31 jackups will re-enter the company into the jackup market; while Transocean likely will divest some jackups over the longer term, management noted on its recent earnings conference call that it is excited about adding jackups ahead of the expected offshore activity pickup, BTIG analyst Gregory Lewis said.
The timing of the acquisition largely revolves around an anticipated pickup in offshore activity, Lewis wrote, expecting improving market conditions to begin materializing in late 2026 or early 2027, “one of the key reasons we believe VAL was willing to accept RIG stock and helps explain why both stocks have reacted positively following the announcement.”
Lewis said he remains positive on the acquisition for both parties and sees upside for Transocean (RIG) shares, but the recent rally in Valaris’ (VAL) share price leads him to believe much of the upside for the company is now baked in.