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Transocean Rises as Carl Icahn Gains Board Seats

NEW YORK (TheStreet) -- Carl Icahn has won two board seats on the board of Transocean (RIG), in a standstill agreement that could also lead to continued restructuring of the oil services giant.

Transocean said on Monday morning it would support the re-election of Samuel Merksamer and election of Vincent Intrieri to its board of directors at the company's 2014 annual general meeting. Both directors are employees of Icahn Enterprises. Transocean also will reduce its board from 14 members to 11 total members.

Icahn Enterprises, which holds a near 6% stake in Transocean worth $1.15 billion as of Friday's close, has agreed to vote in favor of the company's slate of director nominees and proposals it plans to recommend at the 2014 AGM.

Transocean said it would look to implement a master limited partnership to improve its capital structure. The company will look to sell stock in an MLP structure in the middle of 2014, and will retain a minority investment in the entity.

A Transocean MLP would likely securitize cash flows of some of Transocean's drilling rigs into a publicly traded stock that gives investors a significant yield. That MLP security could increase the valuation of some of Transocean's rigs and allow the company to use proceeds from a prospective IPO to reduce its debt, increase dividends or reinvest in higher-margin rigs.

The seeds of Transocean's MLP were arguably set when Esa Ikaeheimonen joined the company as CFO in late 2012, Credit Suisse analyst Gregory Lewis said in a Monday research note. Ikaeheimonen was previously CFO of Seadrill (SDRL).

As part of Transocean's realignment of its board and capital structure, the company also said on Monday it plans to improve its operating margins by $500 million through operational improvements and cost reductions through 2014. Those improvements, taken in conjunction with the previously disclosed $300 million in cost savings associated with its onshore drilling operations, will put total targeted operating margin improvement at approximately $800 million by the end of 2015. 

Transocean said on Monday it would increase its annualized dividend to $3 a share from $2.24 a share, starting in six months' time.

"I am pleased that the Board has agreed to add Vince Intrieri as a nominee, and to reduce the Board size to eleven and I am especially happy about the commitment to pursue a MLP, raise the dividend and increase margins by $800 million through cost cutting and increased efficiency," Carl Icahn said in a Monday statement.

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