TGS and PGS join forces in a landmark $865 million merger

2023-09-19 00:25:25

Milestone Merger: Seismic Giants TGS and PGS Sign £865 Million Deal

Global seismic leaders TGS and PGS have announced a merger, in a deal valued at £865 million, combining their strengths to create a stronger and more diverse geophysical company and data provider to the energy value chain. This milestone agreement, driven by technology and innovation, will result in significant cost synergies of over £50 million per year. The merger is expected to improve economies of scale and enhance the value proposition for clients.

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All-Share Transaction Creates Stronger Geophysical Company

The merger between TGS and PGS will create a robust entity that encompasses various verticals, including multi-client data, streamer data acquisition, ocean bottom node (OBN) data acquisition, imaging, and new energy data. This comprehensive offering will give the combined company a competitive edge in the market.

Analysts Recognize Generous Payment to PGS Shareholders

According to SEB analyst Kim Uggedal, the agreement appears sensible from an industrial perspective, but he believes PGS shareholders receive a generous payment as part of the deal. However, the merger is expected to generate long-term benefits and improve efficiency.

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Strong Institutional Shareholders Backing the Merger

Both TGS and PGS have strong institutional shareholder backing, with major banks being the largest investors. Goldman Sachs funds hold over 15% of PGS, while DNB Global, MH Capital, and HSBC also have significant shareholdings. The Norwegian pension fund Folketrygdfondet is the leading shareholder in TGS, followed by State Street Bank and Trust Company.

TGS and PGS Shareholders' Ownership Distribution

Following the completion of the transaction, TGS and PGS shareholders will respectively own approximately two-thirds and one-third of the combined company on a share capital basis. This distribution reflects the share capital of each company as of 15 September 2023.

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Future Outlook and Expanding Services

The merged company aims to enhance its value proposition for clients by mitigating supply chain risks, achieving economies of scale, and fostering innovation. It will offer a global seismic library covering active basins in both the western and eastern hemispheres, operate a fleet of seven 3D data acquisition vessels for streamer acquisition, and harness about 30,000 mid and deep-water nodes for OBN acquisition. Additionally, it sees substantial growth opportunities in new energy, including carbon capture and storage and offshore wind.

Leaders' Perspective on the Merger

The CEOs of TGS and PGS emphasized the benefits and synergies the merger will bring. According to TGS CEO Kristian Johansen, the combined company's scale, technology portfolio, and premier service quality will benefit clients. PGS CEO Rune Olav Pedersen echoed this sentiment, while PGS Chairman Walther Qvam highlighted the creation of a full-service geophysical company with a strong balance sheet.

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Financial Aspects and Merger Plans

The merged company will have a fully diluted market capitalization of £2.6 billion and a net interest-bearing debt (NIBD) of £649 million. It aims to optimize its capital structure, efficiency, and costs using its combined balance sheets and cash flows. As part of its financial strategy, the company plans to refinance PGS' senior notes and term loans. The merger is subject to various conditions, including due diligence, regulatory approvals, and approval from TGS and PGS shareholders.

SpareBank 1 Markets is serving as the financial adviser, while Schjodt and Advokatfirmaet BAHR act as the legal advisers for TGS and PGS, respectively. The full merger plan is expected to be published in October.

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