Icahn Applies Pressure to Transocean Board, Dividend Reinstated

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March 4, 2013

transocean(Bloomberg) — Transocean Ltd., the owner of the Deepwater Horizon rig that exploded while drilling in the U.S. Gulf of Mexico in 2010, reinstated dividend payments following pressure from billionaire shareholder Carl Icahn.

The board will recommend an annual payout of $2.24 a share, about $800 million in total, Transocean said today in a statement. The Vernier, Switzerland-based company, which had $5.13 billion in cash at the end of 2012, stopped payments a year ago to defend its investment-grade credit rating and maintain a “strong, flexible balance sheet.”

Icahn, the largest Transocean shareholder with a 5.6 percent stake, said in January the company was undervalued and he would propose a $4-a-share dividend at the annual meeting. Before last year, the company paid out $3.16 annually to stockholders.

“While it is not the full $4/share for which Carl Icahn is advocating, we believe it is large enough to satisfy many shareholders while maintaining balance sheet flexibility,” J.B. Lowe and James Crandell, analysts at Dalhman Rose & Co. in New York, wrote today in a note to investors.

‘Remaining Uncertainties’

Today’s announcement follows the start of a trial in New Orleans to determine liability for the explosion at the Macondo well, which resulted in the largest offshore oil spill in U.S. history. Transocean won court approval on Feb. 19 for a $1 billion settlement of claims it violated the U.S. Clean Water Act.

“The board’s decision to recommend a payment for 2013 is based upon the consideration of multiple factors relevant to the company’s business, including remaining uncertainties related to the Macondo well incident,” the company said.

Icahn didn’t immediately respond to a phone message seeking comment on Transocean’s statement. Transocean rose 2.7 percent to $53.53 at 9:51 a.m. in New York. The shares have gained 20 percent this year.

The world’s largest offshore rig contractor will also boost debt repayments by retiring another $1 billion by the end of next year on top of current payment obligations, according to the statement.

Transocean’s previous stance was that the dividend would resume in 2014, Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston, wrote today in a note to investors.

This decision “now suggests to us that it is more comfortable with internal and operational controls, as well as the recent progress made with respect to the Macondo settlement agreements,” he wrote.

The company last week reported a fourth-quarter profit for the first time since 2009 as added drilling in the Gulf of Mexico helped boost rig demand.

Gulf Rigs

Transocean posted net income of $456 million, or $1.19 a share, compared with a loss of $6.17 billion, or $18.67, a year earlier that followed a writedown on the value of its contract drilling business.

The blowout and explosion aboard Transocean’s Deepwater Horizon rig in April 2010 spilled more than 4 million barrels of oil into the Gulf. The accident sparked hundreds of lawsuits against London-based BP Plc, the oil company that hired the rig, Transocean and Houston-based Halliburton Co., which handled cement work on the well.

– Will Kennedy and David Wethe, Copyright 2013 Bloomberg.

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