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6 Billion Dollar Deal

CB&I and McDermott Combine Businesses to Create Engineering Giant

| Editor: Alexander Stark

McDermott and CB&I will combine their businesses in a transaction valued at $6 Billion to create a fully vertically integrated onshore-offshore EPCI company.
McDermott and CB&I will combine their businesses in a transaction valued at $6 Billion to create a fully vertically integrated onshore-offshore EPCI company. (Source: CB&I)

McDermott and CB&I have agreed to combine in an all-stock transaction to create a fully vertically integrated onshore-offshore company, with a broad engineering, procurement, construction and installation service. The estimated enterprise value of the transaction is approximately $ 6 billion.

Houston and The Woodlands/USA — Upon completion of the transaction, McDermott shareholders will own approximately 53 % of the combined company on a fully diluted basis and CB&I shareholders will own approximately 47 %. The transaction combines two highly complementary businesses to create a leading onshore-offshore EPCI company.

McDermott is a provider of integrated engineering, procurement, construction and installation (EPCI), front-end engineering and design (FEED) and module fabrication services for upstream field developments worldwide. The company delivers fixed and floating production facilities, pipelines, installations and subsea systems from concept to commissioning for complex Offshore and Subsea oil and gas projects.

“Together, we will have a broadened reach across the entire energy industry that addresses evolving customer needs, along with a much stronger and more flexible financial profile than CB&I would independently, which will benefit all our stakeholders. This unique opportunity to combine with McDermott was presented as we pursued the sale of our Technology and former Engineered Products businesses,” said Patrick K. Mullen, CB&I President and Chief Executive Officer.

On a pro forma combined basis, McDermott and CB&I would have combined revenues of approximately $ 10 billion and a backlog of approximately $ 14.5 billion.

Synergies of the Transaction

McDermott’s has an established presence in the Middle East and Asia. Together with CB&I’s operations in the United States, the transaction is intended to create a balanced geographic portfolio with a strong position in high growth developing regions. Together, the companies will have a presence across onshore and offshore, upstream, downstream and power markets.

By retaining CB&I’s Technology business, with its 3,000 patents and patent application trademarks and more than 100 licensed technologies, the combined company will be one of the world’s largest providers of licensed process technologies. The transaction is expected to be cash accretive, excluding one-time costs, within the first year after closing. It is also expected to generate annualized cost synergies of $ 250 million in 2019. This is in addition to the $ 100 million cost reduction program that CB&I expects to have fully implemented by the end of 2017.

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Combined Management

Following completion of the transaction, the combined company will be headquartered in the Houston area. David Dickson, current President and Chief Executive Officer of McDermott, will be President and Chief Executive Officer of the combined company, and Stuart Spence, current Executive Vice President and Chief Financial Officer of McDermott, will be Executive Vice President and Chief Financial Officer of the combined company. Patrick Mullen, President and Chief Executive Officer of CB&I, will remain with the combined company for a transition period to ensure a seamless integration. Operational leadership will include representatives from both companies.

The Board of Directors will be comprised of 11 members, including 10 independent directors and David Dickson. Five of the independent directors will come from McDermott and five will come from CB&I. Gary P. Luquette, Non-Executive Chair of the McDermott Board, will serve as the combined company’s Non-Executive Chairman.

Transaction Structure

The combination involves a series of transactions under Dutch law resulting in the sale of CB&I’s entire business, as well as an exchange offer by McDermott in which CB&I’s shareholders can tender their shares. Both the sale and the exchange offer will result in the same consideration for CB&I’s shareholders (subject to tax consequences). The transaction includes CB&I’s Technology business and former Engineered Products business, for which CB&I has obtained from its lender group various amendments to its debt covenants.

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