2007

Merger Model?

Under the influence of our Norwegian friends, we here at Marine Money have expanded our horizons beyond shipping to include the offshore industry. Although written coverage has been limited for the moment, attendees of our conferences will have noted this slant in the conference content particularly in our Norwegian conference over the last few years and soon to make a bigger splash at our Singapore conference.

With that blatant self-serving advertisement as an excuse, we saw an interesting parallel for shipping in the recent announcement of the proposed merger between Transocean and GlobalSantaFe (“GSF”), which are respectively the number one and number two offshore drilling contractors. Both the shipping and offshore industries are clear candidates for consolidation with regular rumors of deals. Both industries are on an earnings tear that is reflected in their lofty stock prices making potential acquisitions too expensive. And as Messrs. Chazan, Gold and Singer wrote in their WSJ article on July 24th:

“The Transocean-GlobalSantaFe deal comes at a time when parts of the oil-services sector seem to be breaking out of the boom-bust cycle that has dogged it for decades. Investors had previously disdained such a volatile industry: In earlier oil booms, drillers would tend to order too many rigs and then get killed by excess capacity if prices fell and demand leveled off.”

This is only an excerpt of Market Commentary – 08/02/2007

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