Transocean Grabs GlobalSantaFe

Updated from 10:50 a.m. EDT

Transocean (RIG Quote) and GlobalSantaFe (GSF Quote) agreed to merge, creating an oil driller with an enterprise value of $53 billion.

The Houston-based combined company will be known as Transocean and will be led by Transocean's current chief, Robert Long. GlobalSantaFe chief Jon Marshall will become president and operating chief.

Shareholders of Transocean will receive $33.03 in cash and 0.6996 shares of the combined company for each share of Transocean they own. GlobalSantaFe shareholders will receive $22.46 in cash and 0.4757 shares of the combined company for each share of GlobalSantaFe they own.

The total number of shares outstanding of the combined company after the transaction will be approximately 318 million shares.

Recently, Transocean was trading up 6.5% to $117.11. GlobalSantaFe, meanwhile, was rising 5.6% to $78.95.

Long said in a statement that the combined company will have a global fleet of 146 rigs.

"This transaction will enhance our high-end floater fleet, including five newbuild ultra-deepwater units, while growing our position in the worldwide jackup market, especially in the Middle East, West Africa and the North Sea," he said. "In addition, we will be positioned to better offer the full scope of drilling services to customers in all geographical areas as we focus on incident-free, efficient operations and further developing our talented workforce."

The aggregate total cash paid to both companies' shareholders will be $15 billion, which will be funded through a bridge loan due one year after closing. Transocean has received a commitment letter from Goldman Sachs and Lehman Brothers providing for this financing, and expects to refinance the loan with a mix of further loans and debt securities.

"The deal is quite positive, it's good for shareholders and also for the off-shore drilling industry as a whole," says Evan Smith, co-manager of the (PSPFX Quote)Global Resources Fund at San Antonio-based U.S. Global Investors.

In particular, he points out that the merger of the two heavyweights should reduce competition in the industry and help keep a floor under service-contract pricing for all companies, not just the two combining entities.