Ensco Extends Losses as Investor Calls for $2.5 Billion Dividend

(Bloomberg) -- One of the largest investors in Ensco Rowan Plc -- disappointed that a recent merger hasn’t revived its stock price -- is calling on the oil-rig operator to sell guaranteed bonds to fund a $2.5 billion special dividend to shareholders. Ensco Rowan’s shares fell more than 6% on the news.

The London-based company has the financial flexibility to issue debt for a payout and doing so would reward investors that haven’t seen a payoff from Ensco Plc’s $1.4 billion purchase of Rowan Cos., according to Luminus Management LLC.

The investment manager, which said it owns 4.6% of Ensco Rowan, has been “extremely disappointed” with its stock performance before and after it closed the deal, according to a letter to the company’s board Wednesday reviewed by Bloomberg.

Shares have fallen about 56% since the transaction closed on April 11. They were down 6.7% to $7.10 at 9:57 a.m in New York, giving the company a market value of about $1.4 billion.

The market hasn’t recognized the company’s high-quality assets, projected $165 million in cost-savings from the deal, extensive balance sheet flexibility and other positive attributes, Luminus said.

Ensco Rowan is trading at a significant discount to its fundamental value as a result, it said.

“We believe that announcing a special dividend that is 56% larger than today’s market capitalization will crystallize many of the merger benefits for EnscoRowan’s shareholders,” Luminus’ Jonathan Barrett, Adam Weitzman, and Ethan Keller said.

Luminus is Ensco Rowan’s third-largest holder, according to data compiled by Bloomberg.

A representative for Ensco Rowan didn’t immediately respond to a request for comment.

Ensco Rowan has the balance sheet flexibility to fund a $2.5 billion dividend by issuing priority guaranteed debt, notes backed by collateral such as its drillships or floating rigs, Luminus said. These notes would prime other bonds, which means their holders would get paid before others in the event of a default.

“Ensco Rowan’s high-quality asset base can backstop over $4 billion in incremental priority guaranteed debt,” the firm said.

While new debt could defer its goal of reaching investment-grade status, Ensco Rowan’s current strategy isn’t being valued by investors and needs to be reconsidered, Luminus said.

Ensco Rowan had about $5.1 billion in total debt at the end of March, according to data compiled by Bloomberg.

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Matthew Monks

©2019 Bloomberg L.P.