Cutting out some of the over the top hyperbole of that article :
•McDermott was afraid that it might be bought by a larger predator like Technip or Subsea7, precisely because it was so successful. So, advised by Goldman Sachs, the company’s management decided to make a bid for CB&I, which specialised in the onshore construction of refineries, LNG plants and petrochemical facilities.
In amongst McDermott's significant number of projects in FEED or execution at the time, it looks like it was identified that McDermott was a potential target for takeover - this was not unfounded as Subsea7 launched a bid on the day the merger was closing. What would an Engineering/Procurement/Construction Management company do in order to protect itself from a potential hostile takeover? Maybe engaging an M&A/finance expert who does this kind of thing as standard practice.
• McDermott paid out $300 million in “finance, structuring and other fees. So they did not scrimp on the advice which you'd imagine would have included a fair amount of due diligence.
And yet... • ...it would need over US$400M of cash to fund CB&I’s horrific project portfolio. Goldman to raise a net of US$289 million, which carries an interest rate of 12 per cent on the nominal issue, a cost of $36 million per year The deal also gave Goldman the right to warrants worth 3.75 per cent of McDermott’s stock
You know what happens when a deal goes pear shaped like that? You'd make damned sure that it never happens again. That is experience that can't be taught.
Ask Twiggy. Or Apple. Or General Motors. Or even the majors - RIO, BHP even Hancock.
LKE Price at posting:
83.0¢ Sentiment: Buy Disclosure: Held
(20min delay)