Early Monday, Noble (NE) said it will acquire Diamond Offshore Drilling (DO) for $1.59 billion in cash and stock. The deal works out to $15.52 per DO share, or an 11.4% premium to Diamond's June 7 close.
Under the terms of the agreement, Diamond shareholders will receive 0.2316 share of Noble and $5.65 in cash for each DO share they own. Following the closing of the transaction, Diamond shareholders will own approximately 14.5% of Noble.
"This acquisition enables Noble to continue our journey of delivering superior innovation and value to a broad range of the leading offshore operators across the world," Noble CEO Robert Eifler said in a statement. "Our position will be strengthened with the addition of four 7th generation drillships and one of the most high-spec harsh environment semisubmersible rigs in the world."
Noble said it expects the transaction to be "significantly and immediately" accretive to its free cash flow per share and will lead to $100 million in cost synergies, 75% of which is expected to be realized within the first year of closing. It added that the combined company would have a backlog of approximately $6.5 billion as of today.
The transaction is expected to close by the first quarter of 2025, Noble said.
"This combination is an ideal outcome that provides Diamond shareholders both immediate and long-term upside potential as part of a more fully scaled platform that can deliver customer and shareholder value on a through-cycle basis, more visibly and accessibly, while gaining access to Noble's robust dividend program," Diamond CEO Bernie Wolford said in a statement.
Speaking of Noble's dividend, the company also announced that its board of directors approved an interim dividend of 50 cents per share for the third quarter. This is in addition to its quarterly dividend of 40 cents per share.
Noble's bid marks more M&A activity in the energy sector
Noble's bid for Diamond Offshore Drilling marks a busy stretch of merger-and-acquisition (M&A) news in the oil patch that started last fall when Exxon Mobil (XOM) unveiled its $60 billion bid for Pioneer Natural Resources.
More recently, ConocoPhillips (COP) announced its acquisition of Marathon Oil (MRO).
Is Noble stock a buy, sell or hold?
Noble has underperformed on the price charts, with its 7.7% one-year total return (price change plus dividends) well below the S&P 500's 27.2% total return. Still, analysts remain bullish toward the oil stock.
According to S&P Global Market Intelligence, the consensus analyst target price for NE stock is $58.73, representing implied upside of more than 30% to current levels. Additionally, the consensus recommendation is a Strong Buy.
