Offshore Drilling's Massive New Marriage

When I consider the newly announced merger between Transocean (NYSE: RIG  ) and GlobalSantaFe (NYSE: GSF  ) , I'm ecstatic that the pair will retain Transocean's name and its stock symbol. Regarding the symbol, I just don't see how this behemoth combination could be better served than by "RIG." And Transocean's a far better name than TransoceanGlobalSantaFe, or even GlobalSantaFe, because it won't send me searching for my shift key every few letters as I type it.

That said, it's almost difficult to understand why a combination of this type didn't occur sooner. The offshore drilling business is about as capital-intensive as it gets, and the quest for oil and gas is becoming more global almost by the minute. And so bigger drillers, it seems to me, will have a leg up (figuratively, of course) in buying, building, and operating expensive rigs and in working effectively in the garden spots where hydrocarbons have been stuffed beneath the oceans' and the earth's surface.

Of course, the numbers associated with the deal are impressive: 146 rigs for the combined company, 20,000 post-merger employees, a $15 billion cash payout to the shareholders of the two companies, roughly 65% of the shares of the new entity held by Transocean shareholders to 35% by GlobalSantaFe holders, and annual cost savings of $100 million to $150 million by 2010.

But perhaps more significant, it seems to me, is that the executive teams from two strongly managed contractors will be combining forces. In the process, Transocean CEO Robert Long will continue to retain the same position at the merged company, GlobalSantaFe CEO Jon Marshall will be president and chief operating officer, and GlobalSantaFe Chairman Robert Rose will be chairman of the merged entity. Strong management, much like access to capital, technological competence, and solid relationships with the operators, is crucial in the drilling business.

So there you have it: a giant new drilling merger that likely will be completed by the end of this year. But with other major drilling contractors such as Diamond Offshore (NYSE: DO  ) , Ensco (NYSE: ESV  ) , and Noble (NYSE: NE  ) each operating rig fleets with a fraction of the offshore units in Transocean's expected contingent, I'm taking bets on how soon the next two contractors will agree to unite.

Drill down for related Foolishness:

Fool contributor David Lee Smith doesn't have positions in any of the companies mentioned. He welcomes your questions or comments. The Motley Fool's disclosure policy is black gold.


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