Okay so I clearly got this wrong originally… Congratulations McDermott… to the victor goes the spoils.
McDermott is now takeover proof for at least the next 5-7 years and maybe forever if they can pull the turnaround off. They are on a roll as a company where the low cost execution skills they honed in the Middle East seem more applicable than ever.
In my defence I have seen more hostile takeovers when one of the nuns at a convent tried to take an extra biscuit at morning tea having been told no…What were Subsea 7 thinking? McDermott hired Goldman Sachs to make them impregnable to a takeover… I thought Subsea 7 had a better plan than simply a few days before a merger that people had been working on for months, specifically designed to avoid an eventuality such as this, firing off a letter saying “Hey if you guys feel like losing your jobs and working for us, why don’t you just drop your whole other idea where you run a bigger company with the upside of looking like heroes if your plan works?”. Unsurprisingly it went down like a future Kanye appearence at an NAACP convention.
I’m genuinely surprised. It never occurred to me they would try and gatecrash a party that late without having a better plan.
The failed Subsea 7 acquisition highlights a big problem in the offshore industry: excess capacity where everybody wants to be the consolidator (naturally) and not the acquired entity. In all markets now there are at least five companies who can deliver any project and in some cases more, and as the larger assets are all global in nature the bigger projects will attract 3-5 serious bids. That is too many for bidding not to be excessively competitive to the point that anything other than breakeven economic profits can be achieved. 30-40% market share is normally considered to be of sufficient scale to have some pricing power yet even at the high-end the industry remains extremely fragmented. The Heerema exit from pipe-lay was the start of the marginal players exiting the market to reduce capacity, but more exits are required with asset utilisation in the 50-60% range.
Consolidation is the answer everyone agrees to excess capacity, but getting there is clearly going to be a very complicated journey. Without it all the scale companies are building on their onshore operations will end up cross-subsidising the offshore installation assets.