EURASIA DRILLING: $1.5 BLN
Eurasia Drilling's top shareholders and management have proposed taking the oil services company private, after Schlumberger walked away from making a $1.7bn investment following resistance from Russian regulators.
Its plan to delist from the London Stock Exchange is the latest example of Russian majority owners abandoning western equity markets amid weak commodity prices and political tensions — and it follows similar moves by Polyus Gold and Uralkali.
But Eurasia Drilling's take-private proposal is set to meet resistance from minority shareholders as the offer price of $10 a share announced on Thursday — valuing the whole company at about $1.5bn — was 9 per cent below Wednesday's closing share price. That is a level that has not been seen since June 2009.
When Schlumberger agreed to buy just under 46 per cent of the company, as part of a deal tabled in January, it had offered $22 per share.
Globally, oil services companies have been under pressure as producers have cut their spending, triggering a wave of dealmaking — including the proposed merger of Halliburton and Baker Hughes, the industry's second- and third-largest companies.
In an update last week, Eurasia Drilling said that its net income in the first eight months of the year was down 50 per cent in dollar terms, year-on-year, while drilling volumes had dropped 18.5 per cent. It is expecting further poor results next year as Russian oil companies review their spending plans.
Eurasia — whose global depositary receipts are listed in London — said that going private would allow it the "maximum flexibility to manage the business" in "the expected prolonged and difficult market conditions".
Its proposed take-private deal is to be structured as a merger under Caymans law between EDC and the bid consortium, which is understood to include Eurasia Drilling's top shareholders Alexander Djaparidze and Alexander Putilov, plus former chief financial officer Richard Anderson.
As a result, the bid consortium would be allowed to vote their shares in favour of the deal. As they collectively hold more than two-thirds of the shares, they would be able to push it through, as long as a special committee of independent directors recommends it, according to a person familiar with the plans.
Another person close to the deal conceded that the take-private proposal was "not a glamorous transaction" but that the company "couldn't do the glamorous transaction because the government wouldn't allow it".
Schlumberger walked away from taking a stake in EDC at the end of September. Before then, it had extended the deadline for completion several times, but the deal failed to win approval from Russia's state committee on foreign investment.
Analysts said that the breakdown of the Schlumberger transaction — which would have been the largest deal by a western company to invest in the Russian oil sector since sanctions were imposed — demonstrated the broader impacts that US and European sanctions were having on western investment into Russia.
"Deals are still being done, as we have seen over the past nine months, but the collapse of this transaction demonstrates that the political drivers for deals in sensitive sectors are increasingly more important than the commercial catalysts," said James Henderson, Russian energy specialist at the Oxford Institute for Energy Studies.
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