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Cover story: The right combination

by Jonathan Sheikh-Miller on Jun 20, 2018

David Dickson, president and CEO of McDermott.
David Dickson, president and CEO of McDermott.

David Dickson is becoming quite the bona fide Texan. As president and CEO he has led McDermott, the expanding Texas based multinational engineering, procurement, construction and installation (EPCI) company, for more than four years. Before that his other senior roles have included leading Technip USA and Global Industries, an EPC outfit with major activities down in the Gulf of Mexico.

So when Dickson appears on the other end of the line of a conference call between the Middle East and the southern United States, his mild Glaswegian accent seems almost incongruous given his professional profile. Dickson is immediately personable and succinct as he explains how his firm has just come through the completion of a business “combination” worth an estimated $6bn with fellow EPC operator, the Chicago Bridge and Iron Company (CB&I).

The deal involves a 3-to-1 reverse split of McDermott’s common stock, but in the lead-up to the agreement, headlines had focused on a sudden and unexpected $2bn takeover manoeuvre for Dickson’s firm from UK based rival Subsea 7 which would have required McDermott, if they had accepted the bid, to pull out of their own ongoing CB&I transaction.

“Subsea 7 came and shocked us all with this offer that came in from leftfield. Obviously the offer just wasn’t compatible to the value of the combination it would create, so that’s why then we responded with rejecting it.

“I think the concern everybody had was normally you would anticipate that a counter offer would come, and time-wise we were running out of time and, much to say, Subsea 7 were running out of time. If you read our business combination agreement, you’ll see that legally we could not have discussions with Subsea 7’s management, even though Subsea 7 kept on saying in the press they wanted us to engage in discussions - and they knew, legally, we couldn’t engage in discussions.”

Dickson continues that there would have been no point to the discussions in any case, describing Subsea 7’s offer as “low” and a “discount to our 52 week high”. Dickson suggests a further offer had been expected, and indeed that might have been the only way any interest could have been sustained, but he mentions the strong support from McDermott’s own shareholders when approving the arrangement with CB&I, as attention from Subsea 7 “fizzled out”.

When asked about the rationale surrounding the British firm’s eleventh hour bid to take over McDermott, Dickson states the move was most likely based on a consolidation play. In fact, many industry experts estimated that if Subsea 7’s bid had been successful, its acquisition of McDermott would have created a new market leader in the subsea oil and gas EPC sector, outstripping other global operators like TechnipFMC and Saipem.

Dickson is self-effacing when theorising as to why McDermott was singled out for Subsea 7’s attentions referring to the fact his firm had enjoyed “a good run over the past couple of years” and it had achieved wins in marketplaces that have proved lucrative for some of its rivals, such as in Mauritania, where the EPCI operator has earned a subsea deal alongside consortium partner Baker Hughes, a GE Company, from oil supermajor BP.

When Dickson took over at McDermott in October 2013, the company was not in such good shape. It had a raft of loss-making projects, which have mostly been turned around as part of an extended financial restructuring strategy, and the management team has also been overhauled.

Similarly, CB&I is a firm that has been hamstrung by several poor-performing projects and, prior to the completion of the McDermott deal, had debt levels in excess of its full company value – with some estimates suggesting more than $2bn worth of liabilities. The firm had to announce a $548mn charge at the end of Q2 2017, related to four engineering projects.

In an interview with another news outlet earlier this year, Dickson drew parallels between the McDermott he took over and the current state of CB&I’s books and emphatically stated that “everything is fixable.” He would utilise the McDermott “playbook” to turn CB&I around.

Dickson’s intricate reasoning for McDermott’s merger with CB&I highlights a lot of comparisons between the two firms and he has been exploring the potential deal for a while.


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