3-to-2 Competitive Landscape Key to Horizon Offshore/ Cal Dive Approval

Of particular interest in the Horizon Offshore (HOFF) - Cal Dive International (DVR) deal is this 2005 DOJ complaint filed in DVR's asset acquisition from Stolt, which involved "saturation diving services." The key here is that this transaction, according to the DOJ, would have created a 3-to-2 competitive landscape in this niche, which is precisely the potential outcome in the HOFF transaction. The Stolt transaction eventually obtained DOJ clearance conditioned upon significant divestitures on DVR's side.

The 3-to-2 concept may be the key in the current HSR review, as the market for shallow water (200 to 1000 ft depths) will be reduced to DVR and Global if this deal is completed. This in no way detracts from the fact that the deals in this industry are routinely passed by the current DOJ/FTC, but as noted above, these highly specialized services seem to subject to some level of scrutiny. One of the problems associated with this case -- and probably the reason for the HSR refiling -- is that recent market share data is not readily available for pipelaying by specific depths.

It must be assumed that the companies have been compiling this data in hopes of avoiding a second request. And it can also be assumed, to some level of certainty, that the companies are stressing the existence of non-U.S. pipelayers as current and potential competitors in the Gulf of Mexico. As this 2005 OilOnline article points out, there are a few capable potential competitors, but there does not appear to be much in the way of current competition other than the three current pipelayers in the Gulf.

In short, this is more complex combination for the DOJ to assess than originally believed, especially in light of its intervention in the Stolt/CalDive transaction. There is very little doubt that this deal will reduce the number of pipelayers in the 200-1000' range to two, and this can only be acceptable if Global Industries' market share is currently near the 50% mark. This publication has not yet found any evidence of this. Thus, there does in fact exist a possibility of a second request for this deal, the chances of which are perceived at approximately 20%.

However, the overriding factor of DOJ preferential treatment for this industry remains fully intact. If a second request is issued at the end of this month, it is probable that the review period will not be terribly lengthy (+/- three months) and will result in unconditional approval, most likely before the end of the year.

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