Helmerich & Payne, Inc. HP shares are trading higher today. The company disclosed the acquisition of KCA Deutag for $1.9725 billion in cash.
KCA Deutag is a drilling company with a land drilling presence in the Middle East. The acquisition grants Helmerich substantial entry into land operations in the region, where KCA Deutag earned about 70% of its 2023 Operating EBITDA.
The transaction is expected to close before the end of calendar year 2024, pending customary closing conditions.
Post-acquisition, Helmerich’s Middle East rig count will jump from 12 to 88, with 71 rigs in Saudi Arabia, Oman, and Kuwait, making it one of the region’s largest rig providers.
The Middle East rig market is projected to grow, and with KCA Deutag’s ~$5.5 billion contract backlog and strong customer base, H&P will gain resilient revenues and improved earnings visibility.
Synergies: H&P expects this transaction to grow its international land operations from ~1% on a standalone basis to ~19% on a pro forma basis based on calendar year 2023 Operating EBITDA, and also its offshore operations will rise from ~3% to ~7%.
The combined company’s last-twelve months Operating EBITDA stands at approximately $1.2 billion.
The transaction is anticipated to be immediately accretive to cash flow and free cash flow per share, with double-digit free cash flow accretion expected by 2025. Returns are projected to surpass the cost of capital by 2026.
Despite the minimal geographic overlap, Helmerich anticipates achieving ~$25 million in run-rate synergies by 2026, mainly from overhead reductions and procurement savings.
Post-closure, H&P will have three main operating segments: North America Solutions, International Solutions, and Offshore Solutions, with North America Solutions remaining unchanged.
Yesterday, the company reported third-quarter adjusted EPS of $0.92, above the consensus of $0.77, and revenue of $698 million, beating the street view.
As of June 30, the company’s cash and cash equivalent stood at $203.6 million.
Investors can gain exposure to the stock via Invesco S&P SmallCap Energy ETF PSCE and SPDR Series Trust SPDR S&P Oil & Gas Equipment & Services ETF XES.
Price Action: HP shares are up 10.4% at $41.70 at the last check Thursday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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