TechnipFMC (FTI) Moves to Unlock Value by Splitting in Two

Seabed-to-surface oilfield equipment and services provider TechnipFMC plc FTI announced plans to separate its engineering and construction business from its technology-focused subsea and surface operations, thereby creating two independent, publicly traded companies.

The spin-off, which could take effect by Jun 30, 2020 subject to certain precedent conditions, will see the formation of a new company that will include TechnipFMC’s Onshore/Offshore segment. Apart from expanding its LNG project capacity, the engineering and construction services company will also widen its focus to include projects associated with biofuels and alternative energy. The 15,000-strong firm will have Catherine MacGregor as the CEO – a Schlumberger SLB veteran who is currently serving as President of TechnipFMC’s New Ventures unit.

The remaining business will continue to be upstream-focused and comprise TechnipFMC’s capital intensive subsea technologies and services. It will be headed by Doug Pferdehirt, the Chairman and CEO of TechnipFMC. With an employee strength of about 22,000, the company – touted as the industry’s largest pure-play operator – will provide high-end equipment to oil and gas producers.  

The spin-off is proposed to be tax-free to shareholders of TechnipFMC. Post separation, current stockholders of TechnipFMC will be distributed the outstanding shares of the spin-off. TechnipFMC will be based in Houston, TX, while the new company – to trade on the Euronext Paris Exchange – is likely to be headquartered in Paris, France.

TechnipFMC’s unanimous move to split itself into two is seen as an attempt to focus on different markets and tap their growth opportunities. Investors should note that London-based TechnipFMC reached its current form following the January 2017 merger between oilfield service players Technip SA and FMC Technologies Inc. It combined Houston-based FMC Technologies, a major underwater energy equipment maker, with Paris-based Technip, an offshore oil and gas field developer.  

Analysts remain positive on the outlook for new TechnipFMC post-split, as it holds the promise of unlocking significant value. Creation of two separate companies will allow both of them to pursue great opportunities in their respective market segments without the constraints of the parent company and better serve the needs of both investor groups.

Following the TechnipFMC spin-off announcement, shares of the company were up almost 4% in New York Stock Exchange trading on Monday.

Zacks Rank & Key Picks

TechnipFMC holds a Zacks Rank #3 (Hold).

Meanwhile, investors interested in the energy space could look at some better options like National Oilwell Varco, Inc. NOV and Dril-Quip, Inc. DRQ that sport a Zacks Rank #2 (Buy).

Over 30 days, the Houston, TX-based National Oilwell Varco has seen the Zacks Consensus Estimate for 2019 and 2020 increase 92% and 100%, respectively.

The 2019 Zacks Consensus Estimate for Houston, TX-based Dril-Quip is 20 cents, representing some 131.8% earnings per share growth over 2018. Next year’s average forecast is $1.13 pointing to another 465.1% growth.

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