Shelf Drilling to Consolidate Jack-Up Fleet and Resolve Funding Gaps via Triangular Merger

UAE-based offshore drilling firm Shelf Drilling (SHLF) has initiated a business consolidation plan via triangular merger between its indirect subsidiary SHLF MergCo, Shelf Drilling North Sea (SDNS), as the surviving entity in the proposed merger, and SHLF as the issuer of the merger consideration shares.

The combination will fully consolidate SHLF’s jack-up fleet, solve the previously disclosed funding gap in SDNS in an efficient manner and allow SHLF to fully support the SDNS entity going forward, the offshore drilling contractor said.

Also, the combined company will draw benefits from a simplified capital structure, while investors should benefit from a more liquid, tradeable share.

The deal will enable SDNS to become a wholly-owned subsidiary of SHLF, solidifying the company’s position as one of the leading global jack-up operators.

Following the completion of the transaction, existing SHLF holders will own approximately 84% of SHLF, and SDNS shareholders - other than SHLF - will own approximately 16% of SHLF.

As part of the merger, the shareholders of SDNS (other than SHLF, SDNS or any of their direct or indirect subsidiaries) would receive as consideration for each SDNS share being cancelled in the proposed merger - 1.05 merger consideration shares in SHLF and a cash consideration of $0.75 (NOK 8.0) per SDNS share.

This represents a total consideration of $2.42 (NOK 25.90) per SDNS share, and corresponds to an equity value of SDNS of approximately $243.1 million (NOK 2.6 billion), based on a value per SHLF share of $1.59 (NOK 17.05), corresponding to the closing trade price on the Oslo Stock Exchange as of September 13, 2024.

The total cash consideration element of the merger consideration amounts to $30 million.

“Combining Shelf Drilling North Sea into Shelf Drilling fulfills our ambition to streamline the Shelf Drilling company structure. The combination offers a pure play investment opportunity with exposure to a uniquely positioned jack up fleet and platform servicing customers across the regions where we operate.

“The transaction high-grades the Shelf Drilling fleet with four premium jack ups and one ultra harsh jack up and allows for Shelf Drilling to finance the $40 million funding need in Shelf Drilling North Sea in an efficient manner.

“Moreover, we expect shareholders in the combined company to gain improved trading liquidity and better access to capital markets. This transaction further underlines our commitment to driving value for all of our stakeholders and is consistent with our focus of being a market leader in core jack-up regions globally,” said Greg O’Brien, Shelf Drilling’s CEO.

The proposed merger is expected to be completed towards the second half of October 2024, subject to timely fulfillment of the conditions of the agreement.

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