Ahead of its pending merger, the U.S. engineering and construction company McDermott and its compatriot CB&I have found ways to save $250 million, including eliminating the perks and reducing board of directors costs.
The companies have received all necessary regulatory approvals for the merger which was proposed last December. The merger is on track to close in the second quarter of 2018.
Shareholders of both McDermott and CB&I will vote for the merger of the two companies at special meetings scheduled to be held at their respective offices in May. However, it is worth reminding that a company which owns nearly 2% of McDermott recently revealed it would vote against the transaction as currently structured.
Meanwhile, the two companies are working on integration planning which is progressing well, McDermott said in an update on Thursday.
David Dickson, President and Chief Executive Officer of McDermott, said on Thursday: “Our integration planning has given us added confidence in our ability to achieve our stated cost synergy target. Through our work, we have identified expected cost savings in excess of $250 million, which further increases the value of the combination for our stockholders.”
The companies have validated the identified $250 million in annualized cost synergies with concrete plans to achieve them by the second quarter of 2019.
According to McDermott, the cost synergies are expected to be driven through efficiencies in Supply Chain/Procurement, G&A, Operations and “Other” (i.e., perks, travel, etc.) savings areas.
The $84 million in Supply Chain/Procurement savings are expected to be executed through a combination of improved commodity/category buying power and supplier consolidation, as well as improved purchase agreements held by both companies. The $84 million in G&A savings are expected to be achieved through a combination of centralization and/or outsourcing of specific transactional functions and right-sizing the overall corporate support core.
The $55 million in operational savings are expected to be executed through pooling of operations support resources in high value centers, facility footprint rationalization and harmonizing project management layers/structures. The $27 million in “Other” savings are expected to be achieved by adopting a more conservative travel and expense policy, eliminating certain benefits/perks and reducing board of directors and insurance costs.
Potential for more savings
In addition to the $250 million, the companies have identified potential incremental savings of $100 million in savings that integration teams are working to verify and determine the expected timing to achieve through leveraging McDermott’s cost conscious culture on the combined business.
These savings are expected to be achieved across G&A, Operations, and Supply Chain/Procurement. With the implementation of the recently announced plans regarding organizational structure and leadership driving integration efforts, McDermott has identified potential additional $9 million in G&A, $22 million in operations and $69 million in Supply Chain/Procurement savings.
These savings are expected to be executed through similar channels as the original savings and will be included in the overall integration plans.
McDermott also reaffirmed its 2018 guidance originally issued on January 24, 2018, as reaffirmed on February 21, 2018. The company expects its order intake for the first quarter of 208 to be about to amount to $320 million and its revenues to be between $600 – 610 million.
Offshore Energy Today Staff