Maersk Drilling and Noble Expect UK to Require Pre-Merger Divestments
The merger of Maersk Drilling and Noble Corporation designed to create a larger company better suited to respond to the challenges in offshore drilling is facing possible opposition from UK regulators. Despite what the companies and industry see as a compelling case for consolidation, the UK Competition and Markets Authority (CMA) is yet to release its phase 1 decision and the management of the two companies expect that they will need to divest of possibly a sixth of the combined fleet to win approval.
“While the CMA is yet to take its phase 1 decision,” the companies wrote in an update to investors on the merger that they, “expect that it will be necessary to divest certain jack-up rigs currently located in the North Sea to obtain conditional antitrust clearance in phase 1 from the CMA.” The CMA is expected to release its phase 1 decision on April 22.
Last November, Maersk Drilling and Noble announced plans for a merger of equals that they said would create a leading company with the scale, capabilities, and resources to address the changing market. At the time of the announcement, the companies reported that Maersk Drilling had a fleet of 19 offshore drilling rigs and specializes in harsh environment and deepwater operations, while Noble Drilling currently had a fleet of 20 offshore drilling units, including 12 drillships and semisubmersibles as well as eight jack-ups.
In a presentation to investors, the companies highlighted that they would have one of the youngest fleets with a high contract rate and leadership in harsh environmental jack-ups and ultra deepwater. The plan called for a fleet of 39 vessels with an average age of 10 years.
Jointly, the two companies tentatively outlined what they are calling the “Remedy Rigs,” identifying the vessels that they expect to be required to divest to gain the UK approval. The list includes the Noble Hans Deul, Noble Sam Hartley, Noble Sam Turner, Noble Houston Colbert, and a CJ-70 design drilling rig which, at this point, they believe is likely to be the Mærsk Innovator, although it is possible the Noble Lloyd Noble could be required to achieve phase 1 clearance.
They reported that constructive discussions are continuing between Noble, Maersk Drilling, and the UK CMA ahead of the publishing of the phase 1 decision. However, they have also started to examine different options to divest the Remedy Rigs. They noted that the boards believe that the financial and strategic rationale underpinning the merger remains intact and they do not intend to change the exchange ratio agreed between them for purposes of the transaction.
Though they expect that they will be required to divest the Remedy Rigs to gain CMA clearance, the announcement said that the duration and outcome of the CMA review process remains uncertain. They highlighted that they have received unconditional approval from the competition authorities in Brazil, Norway, and the Republic of Trinidad & Tobago. Other than the UK, they also still require pre-closing merger control clearances for Angola, which they expect will this month unconditionally approve the transaction.
While waiting for the decision from the CMA, they continue to expect the closing of the merger will occur in mid-2022.