Canyon Capital Plans to Vote Against Rowan Merger With Ensco

(Bloomberg) -- Canyon Capital Advisors plans to vote against Rowan Cos. Plc’s $2.4 billion sale to Ensco Plc on the grounds that the all-stock deal undervalues Rowan and exposes its shareholders to operational and financial risks.

Rowan investors would be better served if the offshore oil-rig operator ran a competitive sale process that resulted in the company being sold for a higher price or broken up and sold in parts, Canyon said in a letter to Rowan’s board dated Jan. 4 that was obtained by Bloomberg.

The Los Angeles-based alternative asset manager, which owns 6.3 percent of Rowan, first announced its opposition to the deal in November, weeks after it was announced. It called the offer price “inadequate” in a regulatory filing at the time and said it planned to discuss the matter with management.

“Canyon is a strong believer in the strength and quality of the company’s assets,” Canyon said. “Unfortunately, the proposed transaction does not reflect such a belief, and fails to offer Rowan shareholders adequate compensation.”

Rowan is standing by the deal.

It "will create a uniquely positioned offshore drilling company with capabilities across all water depths, a significant fleet size, a broad geographic presence and a diverse customer base," a representative for the Houston-based company said in a statement. "We are confident that this transaction is the best way to maximize value for all Rowan shareholders."

A representative London-based Ensco wasn’t immediately available to comment.

Rowan rose 1.4 percent to $9.63 at 9:50 a.m. in New York trading while Ensco gained less than 1 percent, to $4.21.

Canyon plans to vote against the deal because Rowan has better assets and a stronger balance sheet than the purchase price reflects, it said. The merger would saddle Rowan with Ensco’s older fleet of drilling rigs as well as its $5.2 billion in long-term debt, Canyon said.

The deal followed a “flawed sales process” and Rowan’s board failed to test the market adequately, Canyon said.

“The lack of premium for Rowan shareholders fails to compensate them for the vastly increased risk that Ensco brings to the combination,” Canyon said. “If the proposed merger is voted down, Rowan will continue to provide significant standalone value and can choose to run a comprehensive competitive sale process.”

Ensco and Rowan said in announcing the deal in October that the tie-up would reap about $150 million in synergies. Rowan stockholders are to receive 2.215 Ensco shares for each Rowan share they hold.

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