The board of directors of oilfield services provider TechnipFMC has unanimously approved the company’s plan to separate into two independent, publicly-traded companies.
TechnipFMC revealed in a statement on Monday its plans to separate into RemainCo, a fully-integrated technology and services provider, continuing to drive energy development; and SpinCo, an engineering and construction (E&C) player, poised to capitalize on the global energy transition.
The company said that the separation would enhance both RemainCo’s and SpinCo’s focus on their respective strategies and provide improved flexibility and growth opportunities.
The transaction is expected to be structured as a spin-off of TechnipFMC’s Onshore/Offshore segment to be headquartered in Paris, France. The separation is expected to be completed in the first half of 2020, subject to customary conditions, consultations and regulatory approvals, at which time all outstanding shares of SpinCo will be distributed to existing TechnipFMC shareholders.
The 2017 merger of Technip and FMC Technologies created a new subsea player and established TechnipFMC as the only fully-integrated subsea provider.
According to the company, the exceptional performance of TechnipFMC since the merger has made the proposed spin-off possible and, when completed, will enable the two companies to unlock additional value.
The two companies would have distinct and expanding market opportunities and specific customer bases; the enhanced focus of management, resources and capital; robust backlogs supporting future revenue growth; strong balance sheets and capital structures tailored to individual business needs; and, compelling and distinct investment profiles, TechnipFMC explained.
Doug Pferdehirt, Chairman and CEO of TechnipFMC, stated, “Since the creation of TechnipFMC, we have pioneered the integrated business model for subsea and transformed our clients’ project economics. To further enhance value creation, our Board of Directors and management team have continuously evaluated strategic options and, after a comprehensive review, determined that it is in the best interest of TechnipFMC and all of our stakeholders to create two diversified pure-play leaders.
“We are confident that the separation would allow both businesses to thrive independently within their sectors, enabling each to unlock significant additional value.”
TechnipMC said that, with approximately 15,000 employees, SpinCo would be one of the largest E&C pure-plays and is poised to capitalize on the global energy transition.
SpinCo will be positioned to capture LNG opportunities. In addition, the new company will benefit from its position in the downstream market, as well as future growth opportunities in biofuels, green chemistry and other energy alternatives. The company would comprise the Onshore/Offshore segment, including Genesis – a player in front end engineering and design. SpinCo would also include Loading Systems, a player in cryogenic material transfer products, and Cybernetix, a technology player in process automation, that have historically been a part of the Surface Technologies and Subsea businesses, respectively.
SpinCo will be led by a proven management team. Catherine MacGregor, who currently serves as TechnipFMC’s President, New Ventures, will serve as Chief Executive Officer of SpinCo. Bruno Vibert will serve as Chief Financial Officer, and Marco Villa will serve as Chief Operating Officer.
SpinCo will be incorporated in the Netherlands with its headquarters in Paris and listed on the Euronext Paris exchange. Bpifrance, a key shareholder of TechnipFMC, strongly supports the proposed transaction.
With approximately 22,000 employees, RemainCo would be a fully-integrated technology and services provider, continuing to drive energy development. The company’s role will be to support clients in the delivery of integrated production solutions.
As a standalone company, RemainCo will be the largest diversified pure-play in the industry, according to TechnipFMC. Doug Pferdehirt, Chairman and Chief Executive Officer of TechnipFMC, and Maryann Mannen, Executive Vice President and Chief Financial Officer of TechnipFMC, will continue to serve in their roles following the separation. RemainCo will remain incorporated in the United Kingdom with headquarters in Houston and listed on both the NYSE and Euronext Paris exchange.
Upon closing, RemainCo and SpinCo will have tailored capital structures and financial policies appropriate for each company’s business, and both companies are expected to have investment-grade credit metrics. Both companies will be committed to disciplined capital allocation and prudent return of capital to shareholders.
The successful completion of the planned spin-off is subject to general market conditions, regulatory approvals and consultation of employee representatives, where applicable, and final Board approval. The transaction is expected to be tax-free to certain shareholders where permissible, including the United States.
Rystad: TechnipFMC’s move ‘truly remarkable’
Commenting on TechnipFMC’s decision to split into two units, Rystad Energy’s head of oilfield service research, Audun Martinsen, said: “This move shows that TechnipFMC is a forward-thinking company with the ability to shape the business environment it operates in.
“The successful integration of FMC Technologies into the Technip organization in 2017 was impressive in its own right, creating a leading subsea entity on the global stage. Then to turn around two years later and manifest the value creation by splitting the company in two, is truly remarkable.”
According to Rystad, TechnipFMC’s subsea division has turned the company into a market leader in the subsea industry, with $4.4 billion in revenues, well ahead of rivals Subsea 7 ($2.4 billion) and Saipem ($2.2 billion). The success formula has been so-called integrated contracts, which enable suppliers to deliver entire subsea field development projects to oil and gas companies (E&P).
In 2016, integrated contracts had a market share of close to zero. Today they make up around 60% of new field developments, with TechnipFMC driving the growth, Rystad said.
“The potential savings from integrated projects are sizeable for E&P companies and have been a big reason why larger operators tend to prefer this model on major projects. Subsea developments will be the main focus for RemainCo, which means that more resources, R&D and management attention can be devoted to accelerating this trend forward,” Martinsen added.
SpinCo will be centered on TechnipFMC’s offshore/onshore division, which consists of engineering, procurement and construction (EPC) of surface production platforms, midstream and downstream facilities.
LNG facilities have historically been an attractive market for TechnipFMC, and Rystad Energy forecasts a massive wave of planned onshore LNG developments will unlock $80 billion in contracts by 2021.
“With SpinCo, TechnipFMC is seeking now to become a much more focused company. We have not yet seen large-scale synergies resulting from combining subsea and surface capabilities. With this move, TechnipFMC will go in the opposite direction of its now fully-fledged competitor McDermott, which acquired Chicago Bridge & Iron Company (CB&I) last year,” Martinsen remarked.
Over the next three years, Rystad Energy expects the subsea market to achieve a 10% annual average growth, and the EPC market to grow at 8% per annum.
WoodMac: ‘A bold move’
Commenting on TechnipFMC’s plans to demerge, Mhairidh Evans, principal analyst, at Wood Mackenzie, said: “In 2017 Technip and FMC Technologies completed one of the hallmark oilfield service company mergers of the cycle. The business plans to split in the first half of 2020 – but not back into Technip and FMC – rather into ‘upstream’ and ‘mid/downstream’.
“The upstream company, termed RemainCo for now, will be, in essence, the legacy FMC Technologies’ equipment and services business, plus Technip’s subsea vessels and subsea, umbilical, riser and flowline (SURF) manufacturing business. This will also include the surface wellhead business. We believe that the subsea sector is a growing market.
“The mid/downstream company, termed SpinCo, will be an engineering and construction business, focusing on LNG, downstream, and petrochemicals, and will build on the legacy Technip position in those areas.”
She added: “It is a bold move. We think it’s less about ‘correcting’ something that is not working today, rather with an eye on the longer game ahead. Essentially, the demerger is a proactive positioning move for a longer-term market shift.
“The demerger provides focus and flexibility for each of its divisions, which were already fairly distinct. For example, we’d expect the subsea division to build on its market leadership – perhaps by considering other acquisitions or strategic directions that the wider TechnipFMC couldn’t support.
“The two new companies will have different appeal for investors. We think the market will like RemainCo, the more pure-play upstream company, which is already a market leader in subsea.
“The mid/downstream company, SpinCo, has a longer-term horizon, and is less capital- and asset-intensive than its upstream counterpart. It’s also is a deliberate sidestep away from the upstream cycle, towards the energy transition, which is notable coming from one of upstream oil and gas’ oilfield services’ giants.”
Offshore Energy Today Staff
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