There was significant M&A news in the energy sector this morning as Noble (NE, Financial) announced its acquisition of Diamond Offshore (DO, Financial) in a stock and cash deal. The transaction, unanimously approved by both companies' Boards of Directors, is expected to close by Q1 2025. The deal values Diamond Offshore at $15.52 per share, comprising 0.2316 NE shares ($9.87/sh) and $5.65/sh in cash, representing an 11.4% premium to Friday's close. Diamond Offshore shareholders will own approximately 14.5% of Noble.
- Both Noble and Diamond Offshore are offshore drilling contractors for the oil and gas industry. Post-merger, Noble will own and operate a fleet of 41 rigs, including 28 floaters and 13 jackups. The deal adds four 7th generation drillships and one high-spec harsh environment semisubmersible rig to Noble's fleet.
- Noble's 14 working (15 total) dual BOP 7th generation drillships will form the leading tier one drillship fleet in the industry. Diamond's five conventional deepwater and midwater rigs have averaged over 85% utilization over the past three years and currently have strong forward contract coverage. The Ocean GreatWhite will provide Noble with a high-spec floater for harsh environments, while the remaining five semisubmersibles are expected to contribute significant contracted cash flow.
- Noble will benefit from a robust combined backlog of $6.5 billion, with a diverse customer base and operational regions. Diamond's $2.1 billion backlog is significantly accretive on a per share and per rig basis, and attractively priced and structured. The average backlog on the four 7th generation drillships is approximately two years at $460,000 per day.
- Noble expects meaningful cost synergies, estimating annual pre-tax cost savings of $100 million, with 75% realized within one year of closing. The transaction is significantly and immediately accretive to Noble's free cash flow per share and will support capital returns to shareholders. Noble also announced a 25% increase in its quarterly dividend to $0.50 per share.
Overall, investors seem pleased with the transaction. Despite Noble's $6.2 billion market cap compared to Diamond Offshore's $1.6 billion, the deal appears manageable. Typically, the acquiring company's stock trades lower when deals are announced, especially when stock is a major part of the currency used. However, Noble shares are trading higher, likely due to the reasonable 11.4% premium. The addition of Diamond's rigs and backlog appears to be a strategic fit for Noble.
