Global Marine, Santa Fe to merge operations into $6 billion firm

HOUSTON, Sept. 4 -- Global Marine Inc., Houston, and Santa Fe International Corp., Dallas, said Monday they plan to merge in a stock-for-stock transaction that will create the world's second largest offshore drilling contractor.

The transaction is subject to stockholder and government approvals. It is due to close by yearend.

Transocean Sedco Forex Inc., Houston, is the largest offshore contractor.

The merged $6 billion company, GlobalSantaFe Corp., will be headquartered in Houston and will trade on the New York Stock Exchange. The companies said that by combining complementary resources, GlobalSantaFe will improve operational scale and market coverage. It will have one of the industry's youngest, most diversified, and technologically advanced drilling fleets, they said.

Possible combination of the two companies apparently has been discussed for a long time. Sted (Garber, president and CEO of Santa Fe) and I are the third consecutive set of CEOs who have pursued this merger," said Robert E. Rose, chairman, president, and CEO of Global Marine, in a teleconference call early Tuesday.

"This is the best possible merger and the best time for it," Garber said. The merger is driven in part by recent mega-mergers among major oil and gas producers who now want to work with a smaller number of large service contractors. "This puts us in a position to provide what they want, where they want, when they want it," said Garber.

The new company will operate more than 100 rigs in the world's key drilling markets, owning a fleet of 59 offshore and 31 land drilling rigs and operating 13 rigs for others. It also will be a major provider of drilling management services.

Rose will be chairman and Garber will be president and CEO of the combined company. Gordon Anderson, Santa Fe chairman, will serve on the 14-member board of GlobalSantaFe.

There is little overlap between Global Marine, with a major presence in the Gulf of Mexico and some international operations; and Santa Fe, which is entirely international. The combined company's operations will be 25% Gulf of Mexico and 75% international, "which is an extremely good balance," said Garber.

Under the deal, Global Marine stockholders will receive 0.665 shares of newly issued GlobalSantaFe stock for each share of Global Marine and will own 50.6% of the combined company. Gains on the transaction will be taxable to Global Marine shareholders.

The transaction will not be taxable to Santa Fe shareholders, who will retain their existing shares and will own 49.4% of the combined company. GlobalSantaFe will have 233 million shares outstanding, providing "a very liquid trading opportunity for shareholders," Garber said.

The transaction is expected to be modestly accretive to GlobalSantaFe's earnings and substantially accretive to cash flow in 2002.

For the 12 months ended June 30, the two companies combined had $2 billion in geographically diverse revenues. Following the transaction, GlobalSantaFe will have pro forma book equity in excess of $4.5 billion and debt to total capitalization of less than 18%. Both managements expect GlobalSantaFe to continue Santa Fe's dividend policy of $0.13/share/year. They also expect GlobalSantaFe to achieve cost savings and operating synergies of $25 million/year by the end of 2002.

Rose said, "This transaction, which is a merger of equals in every sense of the word, brings together two of the most talented and respected management teams in our industry."

Nader H. Sultan, deputy chairman and CEO of Kuwait Petroleum Corp. (KPC) said his firm supports the merger. KPC owns 37.7% of Santa Fe through a subsidiary and will have 18.7% of the new company.

Global Marine operates 33 jackups, semisubmersibles, and dynamically positioned ultra-deepwater drillships. Santa Fe has 26 marine drilling rigs, including semisubmersibles and premium and heavy duty harsh environment jackups, and 31 land drilling rigs. It also operates 13 rigs for others.