French oil and gas field surveyor CGG SA has rejected a €1.46 billion ($1.8 billion) offer from fellow French energy services company Technip SA, claiming that the offer did not meet the "conditions to pursue" a deal.
Technip confirmed Thursday, Nov. 20, that it had made an all-cash offer of €8.30 per CGG share, a 27% premium to Paris-based CGG's Wednesday closing price of €6.51. The offer, which was delivered on Nov. 10, values CGG at about $4.5 billion, including its fast-growing net debt of about $2.7 billion.
"Technip would like to enter into a constructive dialogue with CGG's board of directors concerning its project that provides a strong strategic and industrial logic," the La Defense-based bidder said. "This combination would create a unique value proposition in our industry, offering technology, engineering, equipment and project management from the reservoir across the entire production system."
The bid provides further evidence that recent falls in oil prices are proving a catalyst for consolidation amongst energy services companies seeking to cut costs as their client's budgets are slashed. On Wednesday, Houston-based Halliburton Co. (HAL) agreed to pay $38 billion, including debt, for cross-town rival Baker Hughes Inc. (BHI).
A lack of possible cost savings from the combination of Technip and CGG left some analysts questioning the motivation behind the approach.
"CGG is mainly in exploration, Technip is mainly downstream, so there is very little overlap and not much room to cut overheads," said a London-based analyst who asked not to be named. "I wonder how much it [the bid] is down to the influence of the French government seeking a solution for CGG's weak balance sheet."
Tudor Pickering Holt & Co LLP also questioned the motivation for the bid in a note that dubbed it a "shotgun wedding…driven by the French government."
The French state owns stakes in both CGG and Technip and had been rumored to be pushing for a combination of the two companies.
CGG is in the midst of a restructuring aimed at cutting both its fleet size and workforce as it seeks to reverse a decline in earnings that had left it with a cash-flow loss of $267 million for the first nine months of the year. That figure did not include one-off costs, such restructuring charges and a third-quarter $55 million writedown on a joint venture.
CGG's losses forced it to renegotiate its debt terms earlier this year to gain headroom on covenants that is was in danger of breaching. The company said in March that it had net debt of $2.43 billion, about 82% of which is not due prior to 2019, though analysts said the figure was now closer to $2.7 billion. As of September its net debt to Ebitda ratio was 2.9 times, CGG said earlier this month, below the new 3.75 ceiling stipulated under the terms of its revolving credit facility.
Technip shares traded Thursday at €56.89, down €3.98, or 6.5%, on their Wednesday close, equating to a market capitalization of €6.5 billion. Shares in CGG were at €8.26, up €1.74, or 27%. CGG shares had already gained 24% in the 10 days since Technip made its offer and prior to disclosure of the bid on Thursday.