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FMC-Technip Merger to Create $13 Billion Oil-Services Firm

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05/19/2016 | 04:05am EST

PARIS?FMC Technologies Inc. and French oil-services rival Technip SA agreed to merge, forming a significant new player in an energy industry racked by a nearly two-year slump in crude prices.

The all-share deal would result in a new company named TechnipFMC with a market value of about $13 billion. The combined company had $20 billion in revenue last year, greater than Baker Hughes Inc. It would be a potential rival to the world's largest oil-services companies, Halliburton Co. and Schlumberger Ltd.

The tie-up brings together the engineering and construction expertise of Paris-based Technip with the underwater equipment and systems of Houston-based FMC. The merger is expected to be completed early next year, with the new company being based in London with operational headquarters in Houston and Paris.

Technip said the transaction was based on strategic and operational benefits. FMC wasn't immediately available to comment.

The deal comes after a wave of cross-Atlantic combinations involving U.S. companies acquiring European companies and moving the tax domicile outside the U.S. in order to benefit from lower levies. Such tax-driven "inversions" have sparked complaints and the U.S. Treasury has been trying to close the loophole.

Technip's shares rose 6.3% to close at ?49.30 ($55.30) in Paris on Thursday after the deal was announced. FMC was off about 4% at $27.48 in late trading in New York.

The merger comes as the oil-services sector is being reshaped by crude prices that have fallen more than 60% in the past two years. Oil-services companies, in providing equipment, project management, engineering and construction for petroleum projects, are often the first to get squeezed when prices fall as clients such as Exxon Mobil Corp. and BP PLC cut back.

As of March, the oil industry has deferred or canceled $270 billion in projects since crude prices began crashing nearly two years ago. Halliburton, Baker Hughes and Schlumberger have cut tens of thousands of jobs.

FMC and Technip also have been hit hard.

FMC has faced stagnating demand for its subsea equipment, as exploration and production companies have pulled back on expensive deepwater projects. The company's inbound orders fell to $672 million from $969 million during the fourth quarter, and its backlog of projects shrank to under $4 billion from $5.5 billion a year ago.

Technip last summer said it would cut 6,000 jobs in a restructuring designed to save more than $900 million in two years. The company said it would sell assets and close some of its businesses in Europe, Asia and Brazil.

"Today we live in very challenging oil and gas market," John Gremp, FMC's chief executive, said on a conference call. "We know that even when oil prices improve offshore production won't be fully developed unless the industry improves project economics," he said.

Technip and FMC said the deal would combine two companies with complementary skills, allowing them to cut costs by $400 million a year starting in 2019. The companies said they had combined earnings before interest, taxes, depreciation and amortization of $2.4 billion, with an order backlog of $20 billion.

"We will have a broader company that includes project management and offshore expertise," Technip Chairman and CEO Thierry Pilenko said on a conference call.

Mr. Pilenko said he didn't expect any regulatory obstacles in getting clearance for the tie-up.

A $28 billion bid by Halliburton for Baker Hughes was abandoned by the two companies earlier this month as U.S. competition regulators raised concerns over competition.

Analysts said the combination disclosed on Thursday was unlikely to run into regulatory hurdles because it involved one company, Technip, merging with a key supplier. Halliburton and Baker Hughes are two similar companies that would have gained a bigger share across a number of markets, analysts said.

The merger would make the new company the "undisputed leader" in subsea project development, said Canaccord Genuity analyst Alex Brooks.

The merger builds on the Forsys Subsea joint venture formed between the two companies a year ago that has shown it can shave as much as 30% from offshore project costs by simplifying project design from an early stage, reducing equipment, supplies and installation costs.

Mr. Pilenko is to become the merged company's executive chairman. FMC President and Chief Operating Officer Doug Pferdehirt is to become its CEO.

Each Technip share will be converted into two shares of the new company, with each FMC Technologies share converted into one share of the new company. Each company's shareholders will own close to 50% of the combined company.

Jordan Patel at Sanford C. Bernstein & Co. said the merger was a step toward solving the industry's endemic problem of high costs. "For every oil-service company globally, tackling existential strategic questions needs to become the defining feature of 2016. Technip and FMC today are among the first to do so," he said in a note to clients.

Alison Sider in Houston contributed to this article.

Write to Selina Williams at selina.williams@wsj.com and Inti Landauro at inti.landauro@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BP PLC -0.21% 510.8 Delayed Quote.2.99%
CANACCORD GENUITY GROUP INC. -1.02% 4.84 Delayed Quote.-15.25%
EURO / BRAZILIAN REAL (EUR/BRL) 0.04% 4.5882 Delayed Quote.3.24%
EXXON MOBIL CORPORATION -0.82% 68.8 Delayed Quote.0.89%
FMC CORPORATION -2.04% 96.34 Delayed Quote.30.26%
HALLIBURTON COMPANY -1.95% 20.62 Delayed Quote.-22.42%
ONE STOP SYSTEMS, INC. -1.61% 2.45 Delayed Quote.26.29%
SCHLUMBERGER NV -3.26% 35.03 Delayed Quote.0.36%
TECHNIPFMC -1.78% 18.18 Real-time Quote.3.00%
TECHNIPFMC -2.03% 19.82 Delayed Quote.3.32%
WTI 0.28% 57.55 Delayed Quote.25.40%
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