Noble Acquires Diamond Offshore, Boosts Fleet in $1.6B Deal

Key Takeaway

• Noble Corp. acquires Diamond Offshore in a $1.6 billion deal, offering 0.2316 shares of Noble plus $5.65 per Diamond share.
• The merger enhances Noble's global scale and market presence, particularly in Brazil, with the largest fleet of top-tier drillships.
• Positive market reaction: Noble shares up 1.5%, Diamond shares up 10%; quarterly dividend increased by 25% to $0.50 per share starting Q3.

Noble Acquires Diamond Offshore

Noble Corp., the largest offshore oil-rig contractor by market value, has agreed to acquire Diamond Offshore Drilling Inc. in a deal valued at $1.6 billion. According to a statement released on Monday, Diamond stockholders will receive 0.2316 shares of Noble plus $5.65 for each share they own, representing an 11.4% premium based on the June 7 closing price. Upon completion of the deal, Diamond shareholders will own approximately 14.5% of Noble’s outstanding shares. Noble shares rose 1.5% in early New York trading, while Diamond shares increased by 10%.

Noble's CEO, Robert Eifler, emphasized the strategic benefits of the acquisition during a conference call with analysts and investors. "Really what this does is it gives the combined company better scale and a better ability to serve customers on a global basis," Eifler stated. He highlighted that the merger would enhance Noble's presence in key markets such as Brazil. The acquisition aligns with Noble’s strategy to target the largest offshore oil contractors globally, particularly those with advanced deepwater rigs.

Offshore Drilling Outlook

The offshore drilling industry, especially in deepwater, is anticipated to experience significant growth in the coming years as the US shale industry matures. SLB, the world’s largest oil-services provider, has projected over $100 billion in final investment decisions for global offshore projects both this year and next. This optimistic outlook is driving companies like Noble to expand their capabilities and market reach.

The combined entity will possess the largest fleet of top-tier drillships equipped with dual blowout preventers, a critical safety feature for deepwater drilling operations. This positions Noble to capitalize on the expected surge in offshore drilling activities. "We’ll add some helpful scale in Brazil and elsewhere," Eifler noted, underscoring the geographical and operational advantages of the merger.

Financial and Operational Details

Noble will finance the cash portion of the acquisition through a $600 million bridge loan. Additionally, Noble plans to expand its board to include one member from Diamond. Eifler, who assumed the role of CEO at Noble shortly before the company filed for bankruptcy at the onset of the Covid-19 pandemic, expressed confidence that regulatory approvals for the Diamond acquisition would be more straightforward compared to Noble's $2 billion acquisition of Maersk Drilling in 2022, which took nearly a year to finalize.

In conjunction with the acquisition announcement, Noble's board has approved a 25% increase in its quarterly dividend to $0.50 per share, starting in the third quarter. This move is likely aimed at bolstering investor confidence and providing additional value to shareholders.

Market Reactions and Broader Implications

The acquisition has been met with positive reactions in the market, with Diamond Offshore shares rising 8.3% following the announcement. The deal is seen as a strategic move to enhance Noble's competitive position in the offshore drilling market. "This acquisition gives Noble a significant edge in terms of scale and operational efficiency," commented an industry analyst.

Morgan Stanley & Co. served as Noble’s lead financial adviser, with Paul, Weiss, Rifkind, Wharton & Garrison LLP acting as legal adviser. Diamond was advised by Guggenheim Securities LLC and TPH & Co., with legal counsel from Kirkland & Ellis LLP.

Management Quotes

• Robert Eifler, CEO of Noble Corp.:

  "Really what this does it it gives the combined company better scale and a better ability to serve customers on a global basis. We’ll add some helpful scale in Brazil and elsewhere."