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This Oil-Drilling Company Just Made a Big Acquisition

Operations At The Port Of Galveston Ahead Of Trade Balance FiguresOperations At The Port Of Galveston Ahead Of Trade Balance Figures
A tug boat passes in front of a dry dock and Ensco oil drilling platforms at the Port of Galveston in Galveston, Texas.Luke Sharrett—Bloomberg via Getty Images

Offshore driller Ensco (ESV) said it would buy smaller rival Atwood Oceanics in an all-stock deal valued at about $839 million to add high-specification offshore rigs to its fleet.

Atwood shareholders will receive 1.6 Ensco shares for each Atwood share.

The deal, which values each Atwood share at $10.72, represents a premium of 32.6% to the company’s Friday close.

Atwood’s shares surged 27.4% to $10.24 in premarket trading on Tuesday, while Ensco was down 6.3% at $6.29.

Oil and gas producers, recovering from a 55% fall in global crude prices since mid-2014, are focusing their efforts on more lucrative shale drilling, while scaling back spending on expensive offshore projects.

This dip in offshore drilling activity has weighed on rates for offshore rigs, eroding cash flows at companies such as Atwood and Ensco that lease out these rigs.

Morgan Stanley, DNB Markets and HSBC Securities (USA) were Ensco’s financial advisers. The company’s legal adviser was Latham Watkins.

Goldman Sachs was Atwood’s financial adviser and Gibson, Dunn & Crutcher was its legal adviser.