Icahn pushes for changes at Transocean

APRIL 4, 2013—Billionaire investor Carl C. Icahn would like to see some drastic changes at the world’s largest offshore drilling company, beginning with voting in three new board members. Icahn has sent an open letter to Transocean shareholders urging them to replace three of the company’s board members and increase the company’s per share dividend. Transocean’s annual general meeting will be held on May 17.

In his open letter, Icahn says: “We believe that shareholders have the opportunity to increase shareholder value by supporting our proposals and replacing Michael Talbert, Thomas Cason and Robert Sprague, directors who presided as members of the Transocean Board during the transactions … we believe destroyed approximately $11 billion of shareholder value and that continues to pursue strategies… that we believe are likely to destroy as much as $3 billion of further value in the future.”
 
According to Icahn, the 2007 merger with GlobalSantFe, which he says, “destroyed over $10 billion of value” and the 2011 acquisition of Aker, which “destroyed almost $1 billion of value.”

Icahn states that the board’s current strategy of endorsing a new plan by Transocean will invest billions of dollars in building low return assets and repaying low coupon debt, rather than returning capital to shareholders. He believes it will “destroy $3 billion of additional value by pursuing the current capital allocation strategy.” He would like to see the company’s dividend raised to $4.00 per share which “will not only result in an appropriate and meaningful return of value to shareholders, but will also force discipline on the Board,” writes Icahn.

In response, Transocean’s board says that “Mr. Icahn’s dividend proposal is in direct conflict with Transocean’s disciplined capital allocation strategy, which includes maintaining a strong, flexible balance sheet and an investment grade rating on its debt; disciplined, high-return investment in the business; and the distribution of excess cash to shareholders. Specifically, the Board believes the dividend proposed by Mr. Icahn would adversely affect the company’s ability to operate and compete effectively in a cyclical and capital-intensive industry. Further, the election of Mr. Icahn’s candidates — who are hand-picked to pursue his potentially damaging short-term agenda — is not in the best interest of the company and all of its stakeholders.”

Icahn has nominated John J. Lipinski, Jose Maria Alapont and Samuel Merksamer for election to Transocean’s board. Icahn and his affiliates own about 5.43% of the shares of Transocean.

“Transocean is accepting lower returns on newbuild assets in exchange for long-term contracts to reduce volatility of their business. However, at the same time Transocean is using massive amounts of cash flow to reduce debt.”

In a presentation at the Howard Weil Energy Conference, Transocean said it had a total backlog from continuing operations of $28.8 billion, $7.9 billion in 2013, $6.7 billioin n 2014, $3.5 billion in 2015 and $10.7 billion for long-term bookings from 2016 to 2027.

Transocean owns or has partial ownership interests in, and operates a fleet of, 82 Mobile Offshore Drilling Units (MODUs) consisting of 48 High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh-Environment drilling rigs), 25 Midwater Floaters and nine High-Specification Jackups. In addition, Transocean has nine rigs under construction, including six Ultra-Deepwater Drillships and three High-Specification Jackups.