Several months ago, I wrote an article on Seeking Alpha about why shareholders should vote "yes" on Carl Icahn's proposals for Transocean (NYSE:RIG). Let's review what has happened since.
Transocean is the world's largest offshore oil driller. Its engineers can access oil miles beneath the surface of the ocean. The stock has lagged in part because of the company's involvement in the Macondo explosion in the Gulf of Mexico.
Famed activist investor Carl Icahn became involved and has won several concessions from management. The first is a special $3 dividend. So you're talking about a nice 5.4% instant yield, on top of its current dividend, which was written about in Seeking Alpha. The second is supporting the election of Icahn employees Samuel Merksamer and Vincent Intrieri to its board. The third is reducing the number of board members from 14 to 11 (thus strengthening Icahn's influence upon the board). Fourth is to strongly consider offering a master limited partnership for tax reasons in 2014.
The stock is just a few dollars off its 52-week high of $59 and up almost $10 over the last few weeks. On November 6, the company beat earnings estimates by 30 cents and announced the construction of five new jackup rigs. Jackups are rigs located closer to the shore and do not go into deeper water.
The entire sector has done well as evidenced by the fact that Market Vectors Oil Services ETF (OIH) is almost at its 52-week high of $51.09. This fund not only holds Transocean but also: Schlumberger (SLB), Halliburton (HAL), and National Oilwell Varco (NOV). West Texas Intermediate crude has backed off its price of over $110 a barrel to $94 but the drillers and service stocks are still strong. Does this mean that the market thinks oil will go back up or that drillers and services will be strong regardless? Or maybe both?
Transocean is a good investment with our without Icahn. The company is the go to outfit for getting oil way offshore. Everyone talks about how much oil we are finding across the globe but the commodity remains strong. However, we'll gladly take the $3 that Icahn spoiled for.
Disclosure: I am long RIG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
