Transocean Prepares to Reject Icahn’s Proposals

Written by: Tsveta van Son
March 18, 2013

Switzerland-based offshore drilling contractor Transocean (NYSE:RIG) will formally reject a proposal from billionaire investor Carl Icahn for the company to pay a higher dividend and appoint three new directors, The Financial Times reported on Monday, March 18. Transocean’s share price fell by more than two percent in pre-market trading in New York.

**Transocean to Battle Icahn on Dividend Payment and Director Nominees**
The FT quoted Transocean’s board as saying in a proxy statement to shareholders that a dividend payout at the level demanded by Icahn would adversely affect the company’s ability to operate and compete effectively against international rivals. In January, Icahn proposed an annual dividend of $4 per share, with Transocean responding with a proposal of $2.24 percent per share. In its statement Transocean’s board said that Icahn’s higher payout demand provided “clear evidence of his lack of understanding of the capital-intensive and highly cyclical nature of the offshore drilling industry”.

In addition, the board also opposed Icahn’s nominees for board positions, saying that they were “hand-picked to pursue his potentially damaging short-term agenda,” as quoted by Bloomberg. On March 7, Icahn proposed John Lipinski, Jose Maria Alapont and Samuel Merksamer be added to the board. Transocean’s board commented in its statement that none of the nominees had experience of oil drilling. John Lipinski is CEO of oil refiner CVR Energy Inc (NYSE:CVI) where Icahn has a majority stake and is chairman, Samuel Merksamer is managing director of Icahn Capital, whereas Jose Maria Alapont is a former CEO of auto-parts manufacturer Federal-Mogul Corp (NASDAQ:FDML), majority-owned by Icahn.

Transocean’s share price, which closed 0.37 percent lower at $53.56 in New York on March 15, was a further 2.13 percent down at $52.42 pre-market early on March 18.
**Investor Activism**
Billionaire investor Icahn, who acquired 5.6 percent of Transocean in January 2013, is known for buying shares in companies which he thinks are underperforming and then pushing for change. Bloomberg reported that Icahn’s interest in Transocean follows his takeover of CVR Energy in 2012 and pressure on natural gas producer Chesapeake Energy Corp (NYSE:CHK), which resulted in board changes and the resignation of the company’s co-founder, CEO and President Aubrey McClendon.

**New Orleans Trial Update**
!m[Transocean’s Share Price Falls in New York Pre-market Trading](/uploads/story/1651/thumbs/pic1_inline.jpg)
The FT also reported that according to the board of Transocean, Icahn’s dividend proposal was “imprudent” given the uncertainties the company faces including damages over the Deepwater Horizon disaster in the Gulf of Mexico in 2010. Transocean, the owner of the Deepwater Horizon drilling rig, is on trial in New Orleans over civil liability alongside BP (LON:BP, NYSE:BP), Halliburton (NYSE:HAL), and other companies involved in the incident, in which the rig burned and sank, triggering the biggest offshore oil spill in US history.

On March 15, Bloomberg reported that Edward G. Webster, a marine engineering expert testifying for plaintiffs, said that Transocean’s documents indicated that the company had failed to maintain the rig properly, skipping critical repairs and upkeep for years before the disaster. Findings of gross negligence would mean that Transocean could be held liable for punitive damages for all plaintiffs.
**Transocean’s share price was 1.83 percent down at $52.58 in pre-market trading as of 4:18 EST on 18 March 2013.**

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