In the first merger among offshore drillers since the downturn, London’s Ensco Plc (NYSE: ESV) said May 30 it agreed to acquire Houston-based Atwood Oceanics Inc. (NYSE ATW) in an all-stock transaction valued at about $1.9 billion.

Under the merger agreement, Ensco will purchase Atwood for 1.60 shares of Ensco for each share of Atwood. Based on Ensco’s closing price on May 26, the total value translates to $10.72 for each of Atwood’s 80.5 million shares, or $860 million, representing a premium of about 33% to Atwood’s closing price of $8.08.

Combined, the company will have a fleet of 63 rigs offshore six continents with an estimated enterprise value of $6.9 billion as well as a revenue backlog of about $3.7 billion. The transaction also includes the assumption of about $860 million of Atwood debt and newbuild commitments of $200 million.

Overall, the Ensco-Atwood merger is a positive for the offshore drilling space as consolidation has been long overdue. However, the transaction itself doesn’t mean much for the currently oversupplied market, said J. David Anderson, senior equity analyst at Barclays Capital Inc.

“The fact remains that the offshore drilling market [both floaters and jackups] remains severely oversupplied with floating rig utilization at 47% and jackup rig utilization at 54%,” Anderson said in a May 30 report.

For Ensco and Atwood, the companies expect $65 million in annual expense synergies from the merger, including a strengthened position as the leading in offshore drilling, said Carl Trowell, Ensco CEO.

“This acquisition significantly enhances our high-specification floater and jackup fleets, adding technologically advanced drillships and semisubmersibles and refreshing our premium jackup fleet to best position ourselves for the market recovery,” Trowell said in a statement.

Upon closing, Ensco will add Atwood's six ultradeepwater floaters and five high-specification jackups to its fleet. Currently, two of Atwood's ultradeepwater floaters are uncontracted newbuilds with roughly $300 million in combined payments remaining due by 2022, Anderson noted.

Together, the combined company’s operations will include the Gulf of Mexico, Brazil, West Africa, the Middle East, North Sea, Mediterranean and Asia Pacific regions with a customer base made up of 27 national oil companies, supermajors and independents.

Ensco Atwood Oceanics Merger Global Footprint Map

Ensco’s executive management will continue in London and Houston and include Trowell as president and CEO, Carey Lowe as executive vice president and COO and Jon Baksht as senior vice president and CFO.

In addition, two members from Atwood’s current board will join Ensco’s board. Ensco’s chairman will also continue to be Paul Rowsey.

At closing, Ensco shareholders will own about 69% of the outstanding shares of the combined company and Atwood shareholders will own about 31%. The transaction doesn’t include any financing conditions, according to the company release.

The merger agreement was unanimously approved by each company’s board of directors. The transaction remains subject to approval by Ensco and Atwood shareholders and other customary closing conditions. The companies anticipate the transaction to close third-quarter 2017, the release said.

Ensco’s financial advisers for the transaction included Morgan Stanley & Co. LLC, as lead, and DNB Markets, part of DNB Bank ASA and HSBC Securities (USA) Inc. The company’s legal adviser was Latham & Watkins LLP.

The financial adviser for Atwood is Goldman Sachs & Co. LLC and its legal adviser was Gibson, Dunn & Crutcher LLP.

Emily Patsy can be reached at