Saipem leads the rises on the Milan Stock Exchange. The group led by Stefano Cao is leading the performance of the Blue Chips for the second consecutive day. It's not just the two new contracts for a total of $880 million that the undersigned company signed on Thursday that are moving the purchases. The market smells the scent of a merger or in any case gives credence to the rumors collected by Bloomberg according to which Saipem is considering a merger with Subsea 7, the Norwegian competitor.
And so Saipem gains 2,21% to 4,44 euros (when the Ftse Mib rises by 0,48%) with volumes equal to 7,2 million pieces changed hands compared to an average of 9,6 million in an entire session of the last month. Subsea 7 on the Oslo Stock Exchange scores an increase of 4,1%. The Norwegian plant engineering company capitalizes around 2,9 billion after hikes that caused the stock to grow by 15% during the year. Saipem instead capitalizes 4,4 of Saipem: the merger (or aggregation) between the two companies would represent one of the largest operations ever in the oil services sector.
What drives the large service groups to the oil sector is above all the drop in oil prices which recorded drops of 28% from the peaks of October 2018. On the one hand, therefore, the strategy of cutting costs by the Oil Companies is becoming increasingly evident, on the other, diversification leads to the search for new businesses, particularly in the renewable energy sector.
Just Subsea 7, led by the president Kristian Siem, failed last year the takeover McDermott International Inc. for 2 billion dollars. Since then, Bloomberg recalls, the company has been hunting for opportunities but has limited itself to small-scale deals such as the purchase of technology supplier 4Subsea in October whose figure was not disclosed.
Other noteworthy deals included General Electric Co. merging its oil services operations arm with Baker Hughes Co. in 2017. Finally, John Wood Group Plc acquired Amec Foster Wheeler Plc for nearly $3 billion dollars in stock the same year.
According to Equita analysts, the news of the new contracts "is positive and improves visibility on our 2020-2022 estimates, especially for the offshore E&C division". As for the possible merger with Subsea 7, the experts note that “from an industrial point of view, the integration of the two entities would strengthen Saipem's exposure to the offshore business and could generate cost synergies. However, we believe that in a merger scenario, Saipem should award a premium to Subsea 7. Assuming a few points of synergies on the combined cost basis and a 10-15% premium in favor of Subsea 7, we estimate a double value creation for Saipem figure".
Citi experts believe that any combination would have “the potential to generate significant cost savings. If we estimate synergies of around 8%-10% of the combined offshore cost base, this would result in savings of around 600-700 million”, equivalent to around 5%-6% of the overall cost base. Furthermore, an agreement with Subsea 7 "would improve Saipem's integrated Epci (Engineering, procurement, construction and installation, ed.) offer" thanks to the existing alliance between the Norwegian group and the giant Schlumberger, world leader in oil services.
