Transocean Ltd. (RIG) Reaches Deal with the ‘Icahn Group’

Transocean Ltd. (RIG), Carl Icahn and certain investment funds managed by Mr. Icahn (the “Icahn Group”) today announced an agreement that would see the world’s largest drilling contractor pay out a dividend, reduce the number of board seats and end a year-long proxy battle.

Icahn, who holds a 5.61 percent stake in the offshore driller, has gone after the company’s management over “unsuccessful” development strategies that according to him, have “destroy[ed] billions of dollars of value…which is clearly reflected in the performance of Transocean shares when compared to its competitors”. Transocean owned the Deepwater Horizon rig that exploded in April 2010 in the Gulf of Mexico, killing 11 workers and leading to the worst offshore oil spill in U.S. history.

Under terms of the agreement, Transocean agreed to implement a Master Limited Partnership-type yield vehicle (“MLP”), which would provide additional financial flexibility as well as enhance the execution of the company’s asset strategy. The IPO of the MLP is expected to be completed around the middle of FY2014 with a minority interest sold at that stage, the company said in a statement.

Transocean also agreed to pay a $3-a-share dividend, while reducing the maximum number of directors on its board to eleven (11) from fourteen (14). Icahn had previously pressed for a $4-a-share dividend. Transocean previously had a quarterly dividend of 79 cents a share.

The deal will also see the re-election of Samuel Merksamer and election of Vincent Intrieri to the board. Mr. Merksamer is employed by Icahn Capital LP, a subsidiary of Icahn Enterprises L.P. and was elected to the company’s board of directors at its 2013 annual general meeting in May. Mr. Intrieri has been employed by Icahn-related entities since October 1998 in various investment-related capacities.

As per the agreement, Transocean will target an improvement in operating margins of about $800 million by the end of 2015. The company earlier promised to realize approximately $300 million in cost savings related to the shore-based initiative by the end of FY2014.

In addition to certain standstill restrictions, the Icahn Group, notes the statement, has agreed to vote in favor of the board’s slate of director nominees and certain other proposals Transocean’s Board may recommend at the 2014 annual general meeting.

“We are pleased that Mr. Icahn recognizes the changes currently underway at Transocean and the continued focus of the Board and management on creating shareholder value”, said Steven L. Newman, President and Chief Executive Officer of Transocean Ltd.

Carl Icahn remarked, “I am pleased that the Board has agreed to add Vince Intrieri as a nominee, and to reduce the Board size to eleven and I am especially happy about the commitment to pursue a MLP, raise the dividend and increase margins by $800 million through cost cutting and increased efficiency. I believe that Transocean is now on the road to realize its great potential. We look forward to continued collaboration with the Board of Directors and management.”

RIG, currently trading at nearly 10x earnings forecasts for FY2014, last closed at mid $53 per share in the NYSE. Ticker is up 12% in just the past week and 20% year-to-date.

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