Earlier this month, Foolish colleague Josh Wilburn posed the question "What Will Seadrill Buy Next?" That's proven a very timely one, as Pride International
Speculation surrounding a sale of Pride is nothing new. Seadrill built a roughly 10% stake in the company back in 2008, and holds it to this day. Pride has only increased its attractiveness as a takeover target by jettisoning its undesirable mat-supported jackup business, Seahawk Drilling
Ensco and Seadrill have squared off in the recent past. In May, Ensco made a partial tender offer for the shares of Scorpion Offshore. Seadrill trumped this offer (with a modest 1.25% per-share premium), and picked up the company.
Ensco has shown itself unwilling to get into bidding wars, and Seadrill is by far the more aggressive industry consolidator. The company's chairman has even spoken about combining with industry heavyweight Transocean
Speaking of strategic reviews, the struggling Seahawk has launched one of its own this week. After floating the idea of raising cash to buy international rigs a few months ago, the company now says it's looking at other options, including "transactions involving a sale of assets, a recapitalization, or a sale or merger of Seahawk."
It's hard for me to imagine any current operator wanting to buy or merge with Seahawk, given the near-term drag on performance. A financial sponsor of some sort, like an energy-focused private equity shop, might see the merits of eating some losses with an eye to a rebound a year or two down the line. As I've outlined in the past, Seahawk's earnings power under such a scenario could make the shares worth more than $20 per share.
The problem is that such a rebound would require a return of demand for the drilling of shallow-water Gulf of Mexico wells, and not of the deep-shelf variety that McMoRan Exploration
Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Fool owns shares of Ensco and Noble. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.