CGG (CGG), Technip Have Limited Possible Synergies, Says Goldman Sachs

CGG (NYSE: CGG) earlier confirmed it was approached by Technip with an unsolicited offer. In the view of Goldman Sachs analyst Henry Tarr, there isn't a strong strategic rationale for a deal, and possible synergies are limited.

"We do not see a strong strategic rationale for this deal, with limited synergies possible between the two companies as they are in separate businesses," said Tarr. "At €8.30, the implied EV of CGG is c.US$4.3 bn (2014E net debt), with a market cap of c.US$2 bn. Technip could fund this in cash, taking Technip’s net debt to c.€2.7 bn, or roughly 2.6x 2014E net debt (adjusted for prepayments)/EBITDA (adjusted for multi-client amortization). On a headline basis the figure would be 1.4x. The implied EV/EBITDA at €8.30 for the deal is 7.6x 2014E (we adjust EBITDA for multi-client amortization in this calculation). Based on our current estimates for CGG for 2015E, and a 5% cost of debt, we would see the deal (at €8.30/share) being c.15% dilutive to Technip 2015E EPS, as we forecast CGG to be loss making until 2016. Assuming 5% cost synergies and a 4% cost of debt would imply 10% dilution."

"As CGG has rejected the offer, there remains the potential for Technip to make a further offer although there may be limits to how levered Technip would be willing to be. If the deal were to go ahead it would increase Technip’s leverage substantially, and increase the asset intensity of the business. At this stage it remains unclear how Technip would deal with the seismic vessels in the company. We note that Technip states that it is most interested in the technology and equipment parts of the business (Sercel and the reservoir processing business) rather than the seismic vessels," he added.

Goldman Sachs has a Sell rating on Technip.

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