Stifel says possible sale could mean material upside to Seadrill shares

Stifel notes that as reported by Bloomberg, Transocean (RIG) is in talks to merge with Buy-rated Seadrill (SDRL). While Seadrill has just enough scale as a standalone company, Seadrill is the smallest of the big four, the firm says. Transocean currently has 24 active deepwater rigs and Seadrill has 11 active deepwater rigs. As a result, a combined Transocean and Seadrill company would be the largest offshore operator by far. Given that Transocean is the only public offshore rig company to not go bankrupt in the last cycle and thus has loads of legacy debt, the merger would be a deleveraging event for Transocean, and likely put the combined company on a much stronger financial footing, argues Stifel. Ultimately, the firm thinks there is a reasonably high probably of occurring. If it does, Stifel would expect Seadrill’s shares to be worth about $55/share, while remaining accretive to Transocean shares.