GlobalSantaFe/Transocean Merger Should Be Trouble-Free

The GlobalSantaFe Corporation (GSF) - Transocean Inc. (RIG) merger is a very interesting combination given the recent history of the drilling industry and the very transparent nature of the FTC when it comes to energy-related mergers. Seven years ago, the Falcon Corporation-RIG merger drew a second request and ultimately received unconditional clearance after a relatively short (two-month) second request review period. At the time, it was the largest and most significant merger in the drilling industry. Just a year later, Global and Santa Fe combined, sailing through the HSR review, and every other review, in a 78-day transaction. Other than the Varco-National Oilwell (NOV) merger which combined a wide variety of overlapping drilling equipment, and also receive a second request, drilling-related deals have become a complete non-issue with the FTC.

The impact of this deal on the drilling industry will be enormous. Yet even if the combined entity will control in upwards of 50% of drilling operations in any one geographic area, the FTC will probably not create any major issues for the deal. The current Universal Compression Holdings (UCO) - Hanover Compressor (HC) transaction is a perfect example of this concept as overlaps in that deal will create market shares exceeding 70% in some compressor niches, yet the companies just completed what can only be described as a passive second request. In other words, there does not appear to be antitrust issues in any mergers related to the energy industry these days, which is not all that surprising given the circumstances.

Nevertheless, research will be conducted into the companies' respective operations to determine if a second request is warranted. Seven years ago, this would have been a no-brainer second request, but now there must be severe overlaps in order to draw antitrust interest. It must be assumed that the companies factored this into the decision to combine and are confident the regulatory trend of disinterest will continue.

The other aspect for this deal, particularly if the HSR review passes quickly, is the SEC review process. Deals in the energy industry seem to be the only ones not immune to random, lengthy proxy reviews. Any given deal, regardless of actual SEC exposure or internal factors, is a candidate for a 90-day+ proxy review, so this case must also be considered vulnerable to this sort of delay. This will be discussed further in future entries.

For now, the focus will be the rig operations of the companies and determining if there is any reason to expect the FTC to take a long look at this merger. The initial impression is that this will not occur and the deal will have little trouble closing in less than four months.

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