Transocean Buys Back Its MLP

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Offshore driller Transocean Ltd. (NYSE: RIG) announced Monday that it will buy back the remainder of the shares in Transocean Partners LLC (NYSE: RIGP) it does not already own in an all-stock deal valued at around $250 million. Transocean will issue 1.1427 shares of its stock in exchange for each common unit of Transocean Partners. The exchange represents a premium of 15% to the common units’ closing price on July 29, 2016.

Transocean Partners was formed two years ago after activist investor Carl Icahn had put pressure on Transocean for a special cash dividend of $4 a share. Shareholders rejected that proposal in 2013 but did put an Icahn representative on its board and lifted its annual dividend from $2.24 to $3.00 at the 2014 shareholders meeting.

Unitholders of Transocean Partners must approve the transaction. Transocean will vote its 50.1% stake in favor of the deal, leaving a total of 9.9% from other shareholders in order to meet the necessary votes to go forward. Transocean expects the transaction to be completed in the fourth quarter of this year and “to generally be non-taxable to Transocean Partners common unitholders.”

Transocean CEO Jeremy Thigpen said:

We are excited about this merger, as it provides significant and immediate benefits to Transocean in the form of simplified administration and governance, tangible cost savings and improved liquidity. The contemplated all-equity transaction is entirely consistent with Transocean`s current liquidity objectives.

Kathleen McAllister, CEO of Transocean Partners added:

Transocean Partners common unitholders will benefit from a premium to the current unit price and receive shares in an entity with significant financial flexibility, a demonstrated access to capital and meaningfully improved market liquidity of its shares. Additionally, we expect that common unitholders will also benefit from Transocean’s significantly larger and more diverse fleet and its industry-leading contract backlog.

Common units in Transocean Partners traded up about 9.4% Monday morning, at $11.95 in a 52-week range of $5.89 to $13.35.

Transocean’s stock traded down about 6%, at $10.30 in a 52-week range of $7.67 to $17.19. The stock’s 12-month price target is $9.19.

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