Batista’s OSX in Merger Talks With Sete Brasil [REPORT]

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September 24, 2012

RIO DE JANEIRO–Brazilian billionaire entrepreneur Eike Batista is in early talks to merge his shipbuilding and oilfield-services company, OSX Brasil S/A (OSXB3.BR), with drill-rig holding company Sete Brasil, local financial daily Valor Economico reported Monday.

Talks are at an early stage, with Mr. Batista likely gaining a stake in the combined entity should a deal be reached, Valor said, citing a person affiliated with one of Sete Brasil’s shareholders. OSX declined to comment on the potential deal, which first surfaced on Bloomberg television late Friday.

Should the deal come to fruition, it would combine one of Brazil’s new shipyards dedicated to the oil and natural-gas industry with an investment vehicle that holds majority stakes in 28 drill rigs to be built for state-run energy giant Petroleo Brasileiro(PBR, PETR4.BR), or PetrobrasPetrobras needs the rigs, which are expected to be delivered through the second half of this decade, to develop recently discovered offshore oil fields that the company says will more than double current crude-oil output to 4.2 million barrels a day by 2020.

A formal proposal for the possible merger hasn’t yet been made, Valor said.

The affect of a combination of the two companies is unclear, according to analysts atCredit Suisse. The deal could be advantageous for OSX minority shareholders “if” the merger opened up closely held Sete Brasil’s order backlog for the shipyard, while Sete Brasil could benefit “if” it wants to become an integrated company with its ownshipbuilding capacity, Credit Suisse said.

Without further information about the potential combination and terms, Credit Suissesaid that it was “inherently difficult to say whether this would be positive or negative for OSX minority shareholders.”

Petrobras holds a 10% stake in Sete Brasil, which was created in 2011 by the energy giant and several Brazilian pension funds and banks.

-By Jeff Fick. (c) 2012 Dow Jones & Company, Inc.

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