Transocean Deal With Icahn Includes Spinning Off MLP

Transocean Deal With Icahn Includes Spinning Off MLP

Activist investor Carl Icahn picked a battle with oil driller Transocean earlier this year, and today he got most of what he wanted from the company. Transocean announced an increased dividend of $3 per share, which was below the $4 Icahn sought but is a hefty increase from the previous $2.24 per share.

Transocean will also recommend that shareholders approve a board of directors' seat for longtime Icahn associate Vincent Intrieri and re-elect board member Samuel Merksamer, who is employed by Icahn Capital. The two seats, along with a reduction in the board's size from 14 to 11, mean Icahn has a sizable piece of the company's directors in his corner.

Transocean previously proposed trimming the board's size at its 2011 annual meeting but it didn't meet the quorum requirements and the proposal wasn't voted on. Transocean said if the quorum requirement isn't met at the 2014 meeting, it plans to leave three board seats vacant.

The company is also looking to boost margins by $800 million through cost-cutting efforts and other measures.

The most notable move of the day may have been an announcement that Transocean will spin off a master limited partnership, something energy companies often use to save on their tax burdens. The MLP is expected to have its IPO in mid-2014. Some of Transocean's assets will be pushed to the new entity, similar to when pipeline companies push assets down to their MLPs.

This is another example of a company giving in to Icahn's demands and it puts Transocean on a path to higher leverage. The company is building new ultra-deepwater rigs that will drive future growth, but a higher dividend payout will require more debt to finance the expansion. As long as the deepwater market stays hot this shouldn't be a problem, but it's something for investors to consider when looking at the stock.

-- Material from The Associated Press was used in this report.


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