Technip/CGG tentative offer: what brokers say

Here a compendium of brokers comments following the surprise Technip’s offering of €8.3 for each CGG share:

Exane BNP Paribas:

« Technip has confirmed that it has approached CGG with an offer of EUR8.3/sh. We think that the deal is large and complicated relative to the industrial logic and synergies we can see in the medium-term. We adjust our TPs (CGG from EUR6.5 to EUR8.1 and Technip from EUR78 to EUR70) to reflect the possibility of a deal being concluded, with an additional reduction in the target multiple for Technip on the question marks this offer brings.
(…)

While we saw M&A coming, we certainly didn’t have this deal high up on our list. We see value for TEC in the reservoir engineering part of CGG’s GGR division. However, as good as Sercel and some of GGR are, there is very little overlap with TEC’s existing businesses. We’d have seen a move into subsea equipment as a far more natural fit for Technip. We think this deal could impact the market’s favourable perception of Technip management. (…)

We think the best argument for this deal is that Technip is buying in at a time when marine seismic can’t get much worse (witness Seabird “circling the drain”), and acquiring some good technology in a business that is underperforming. We look at the case assuming spin-off of Acquisition and estimate ‘16E EV/EBIT of 7.2x at a EUR9/sh bid price, c30% above TEC’s multiples, and a c.10% ROCE (or 16E EV/EBIT of 13.4x and 5.2% ROCE before spin-off). »

Goldman Sachs (on Technip):

« We do not see a strong strategic rationale for this deal, with limited synergies possible between the two companies as they are in separate businesses. At €8.30, the implied EV of CGG is c.US$4.3 bn (2014E net debt), with a market cap of c.US$2 bn. Technip could fund this in cash, taking Technip’s net debt to c.€2.7 bn, or roughly 2.6x 2014E net debt/EBITDA. The implied EV/EBITDA at €8.30 for the deal is 7.6x 2014E (we adjust EBITDA for multi-client amortization in this calculation). Based on our current estimates for CGG for 2015E, and a 5% cost of debt, we would see the deal (at €8.30/share) being c.15% dilutive to Technip 2015E EPS, as we forecast CGG to be loss making until 2016. Assuming 5% cost synergies and a 4% cost of debt would imply 10% dilution. »

Investec:

« The oil price collapse in 1998 catalysed a wave of industry consolidation amongst the international oil companies. The collapse in 2014 seems to be doing the same for the OFS sector. Halliburton plus Baker Hughes makes sense, in our view. Technip plus CGG less so. Technip will also have to convince that the hand of the French government is not at work here. »

DISCLAIMER

The author of this article owns CGG shares.

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