Technip Bets on Oil Industry Recovery with FMC Merger

Technip SA and FMC Technologies Inc. (NYSE: FTI) agreed to merge in an all-stock deal, creating a $13 billion oil-services company following the worst crude-market collapse in a generation. The deal follows Range Resources Corp.’s (NYSE: RRC) announcement to buy Memorial Resource Development Corp. (Nasdaq: MRD).

The combination will give Technip investors two shares in the new business for every Technip share held, while FMC investors will get one, the companies said Thursday. They expect the tie-up to deliver at least $400 million in annual pretax savings in 2019.

The new entity, TechnipFMC, will be listed in Paris and New York, according to a joint statement. Technip Chief Executive Officer Thierry Pilenko will be executive chairman while Doug Pferdehirt, president and chief operating officer of FMC, will serve as CEO. Each company’s shareholders will own close to 50 percent of the combined group, based in Paris, Houston and London.

“The synergies targeted are significant -- and above what we expected,” James Evans, an analyst at Exane BNP Paribas in London, said in an e-mailed note. “This is positive for Technip shareholders.”

Technip jumped as much as 14 percent in Paris trading, the biggest intraday gain in almost three months, and was up 10 percent at 51.23 euros as of 10:51 a.m. local time. The French company has lost a quarter of its value over the past year, while FMC has sunk more than 30 percent in New York.

FMC and Technip, respectively the largest provider of subsea equipment to the industry and Europe’s biggest oil-services company, are combining at a time when tumbling crude prices have led customers to cancel projects and demand lower fees from suppliers. U.S. competitors Halliburton Co. and Baker Hughes Inc. also tried to merge, before calling off the planned deal this month amid stiff resistance from regulators in the U.S. and Europe.

“When oil prices and operator cash flows improve, offshore production won’t be fully developed unless the industry improves project economics,” John Gremp, chairman and CEO of FMC, said on a conference call. “To do this requires significant and sustainable cost reduction, and to achieve this requires change.”

Bloomberg reported last year that Technip and Houston-based FMC were in negotiations. The companies had already announced a joint venture for offshore fields, called Forsys Subsea, in March 2015 as they sought to cut costs to weather the market rout.

“We are highly supportive of the deal,” Nicholas Green, an analyst at Sanford C. Bernstein Ltd. in London, said in a note. “M&A is key to unlocking future demand, and is an essential defensive tool of cost synergy. For Technip in particular, the tie with FMC appears to solve growth problems.”

Technip and FMC had combined sales of about $20 billion last year and earnings before interest, taxes, depreciation and amortization of about $2.4 billion, according to the companies. They had a total order backlog of $20 billion at the end of March.

Technip and FMC expect the deal to close in early 2017, subject to shareholder and regulatory approvals. The merger will have an “implementation cost” of about $250 million, according to Pilenko. He doesn’t foresee any regulatory issues since “overlaps” with FMC’s business are minor, he said on the conference call.

Goldman Sachs Group Inc. and Rothschild & Co. are advising Technip on the deal, while Evercore Partners Inc. and Societe Generale SA are working with FMC.