The proxy battle between the incumbent management and activist
investor Carl Icahn for the control of offshore drilling giant
) came to an end on Nov 11, with the former partly yielding to
the terms of Icahn.
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The board has agreed to re-elect Samuel Merksamer and appoint
Vincent Intrieri at the 2014 annual general meeting. Both
Merksamer and Intrieri are associated with the Icahn group. With
two seats in the Icahn-proposed smaller board (11 against the
previous 14) that management has agreed to, the billionaire
investor seems to have firmly secured his place in the
Transocean also disclosed the annualized dividend payment of $3
per share - payable 6 months from now - down by a dollar from
Icahn's demand. But with control over almost 6% shares, Icahn
should not be too disappointed as the hike would give his
dividend gains a push in the right direction. Moreover, the move
would spread investor cheer as the new dividend not only reflects
an almost 34% hike from $2.24 paid previously, but would also be
the first payment since 2011.
Among other changes, Transocean also expects to improve operating
margin by $800 million by the end of 2015, through improved
efficiency and cost-cutting measures.
A key attribute of the announcement is Transocean's decision to
spin-off a master limited partnership (MLP). This is a common
move undertaken by several energy companies to increase their
financial flexibility and enjoy tax incentives. The initial
public offering (IPO) for the MLP is expected to take place in
mid 2014. The proceeds from the minority interest to be sold
during the IPO should help Transocean to pay the hefty dividend.
The long-drawn battle has finally been settled with both parties
emerging winners. Most of Icahn's demands were met and the
company's shares grew $1.92 (or 3.6%) to settle at $55.37 when
the market closed yesterday on the promised shareholder value
Transocean currently holds a Zacks Rank #3 (Hold), implying that
it is expected to perform in line with the broader U.S. equity
market over the next one to three months.
Meanwhile, one can consider other oil and gas drilling service
Pacific Drilling S.A.
) which currently sport a Zacks Rank #1 (Strong Buy) or
Helmerich & Payne
) which holds a Zacks Rank #2 (Buy).