Really Winning the merger between Technip and FMC Technologies? – The Express

The announcement of the merger between Technip and FMC Technologies to form a giant dedicated services to the oil sector has obviously attracted investors if one considers the sharp rise in Technip shares (more than 10 %) upon resumption Thursday morning. It must be said that the operation makes sense in a particularly difficult context for all of the oil industry, weakened by the fall in oil prices that began there nearly two years.

The two partners already know that they created a joint venture, Forsys Subsea it a year ago, with already very good results in the key. The goal now is to take account of the new situation on the oil market to offer a complete range of Subsea solutions, Surface and Onshore / Offshore, which will significantly reduce the costs of production and processing of hydrocarbons.

Significant synergies

Faced with declining revenues, the oil companies will continue in effect as the most profitable and projects with solutions the least costly. The alliance between Technip and FMC Technologies meets these challenges. According to some analysts, it will reduce by 30% the offshore project development cost to a horizon of 3 to 5 years. The merger between the two groups must indeed lead to significant synergies, estimated at $ 200 million in 2018 and 400 million in a full year from 2019. They will come from efficiencies in the chain procurement, infrastructure optimization and rationalization of the housing stock.

The new group, called TechnipFMC, which will be led by Thierry Pilenko, the current boss of Technip, has a pro forma turnover of 20 billion dollars for 2015 and an EBITDA operating 2.4 billion. It has a strong backlog of twenty billion dollars, the equivalent of a year in revenue. The challenge is just a first step to stabilize this order book, although substantial, began to melt in recent quarters with the oil counter. In 2015, catches Technip’s order have been almost halved to return to 7.5 billion euros.

An unknown size

With a larger supply and scalable (from design to delivery of the project) and cheaper, TechnipFMC should be able to win market share from competitors who are likely also have to question the wisdom of allying in a sector dedicated to the concentration. The group is also well armed financially, knowing that at the end of fiscal 2015, Technip had net cash of nearly 2 billion euros.

The risk of such a reconciliation could lie in the execution of the merger and possible delays in the implementation of synergies. But the fact that the two groups are already familiar through their joint venture is a major asset.

It remains unknown size: the future price of oil. Visibility about it remains low even though oil prices have sharply rebounded from their lowest annual levels and oil companies have not finished cut their net drilling exploration investments. Despite the merits of this combination, so we remain cautious on the issue. Note that if the project goes to completion as is likely, the shareholders of Technip will receive two shares in the new company for each share owned Technip, while FMC Technologies shareholders will receive one share for every share held.

The pluses and minuses of the file:

– Investment reduction of oil companies

– Low visibility courses of barrel

A great financial strength that contrasts with the sector