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TechnipFMC's 'bold move' to split company met with warm welcome on Wall Street

TechnipFMC PLC's decision to split the company into two distinct businesses was greeted warmly by both analysts and investors, some of whom called the move "proactive" or "forward looking."

"I believe we are at the beginning of seeing a reshaping of the industry ... we're proudly at the forefront of that," Doug Pferdehirt, president of the oilfield services company, said while announcing the news Aug. 26.

Pferdehirt said the move, which will create one company focused on the upstream business and another on midstream and downstream opportunities, is key to driving through-cycle project returns to attract the investment community.

TechnipFMC was created in 2017 through the merger of Paris-based Technip and Houston-based FMC Technologies in "one of the hallmark oilfield service company mergers of the cycle," Wood Mackenzie principal analyst Mhairidh Evans said Aug. 27. She noted, however, that the plan to split the combined company in the first half of 2020 is not an attempt to unwind the 2017 merger but rather to take advantage of a changing market.

"It is a bold move," Evans said. "We think it's less about 'correcting' something that is not working today, rather with an eye on the longer game ahead. Essentially, the demerger is a proactive positioning move for a longer-term market shift."

Experts with consulting firm Rystad Energy agreed. "This move shows that TechnipFMC is a forward-thinking company with the ability to shape the business environment it operates in," Rystad’s head of oilfield service research, Audun Martinsen, said. "The successful integration of FMC Technologies into the Technip organization in 2017 was impressive in its own right, creating a leading subsea entity on the global stage. Then to turn around two years later and manifest the value creation by splitting the company in two, is truly remarkable."

From a market perspective, there are very few synergies between upstream and downstream, Pferdehirt said during an Aug. 26 call.

"There has never been a better time than now" for Technip to spinoff its engineering and construction business into an entity called SpinCo., which will combine its front end engineering design business Genesis, its cryogenic material transfer products provider Loading Systems and its process automation provider Cybernetix. The company will be well-positioned to compete in the growing LNG, biofuels, green energy and other alternative energy fuels markets, Pferdehirt said.

With Catherine MacGregor at the helm, the Paris-based SpinCo. will be pursuing several large projects in the LNG growth market with one or two of those projects expected to achieve final investment decision in the coming quarters, Pferdehirt said.

Technip's subsea and surface business will belong to the second company, Houston-based RemainCo. Led by Pferdehirt, RemainCo. will build upon subsea technologies to provide a more significant opportunity for integration in surface production, Pferdehirt said. The company will be fully integrated and production focused across the broad range of end markets on deepwater, conventional and unconventional resources.

Each company will offer compelling market opportunities, strong balance sheets and the dedicated focus of management, Pferdehirt said. "We expect that both companies will have investment-grade metrics."

"We love this decision," analysts with Tudor Pickering Holt & Co. said in an Aug. 27 note. The analysts said a subset of the investor community was never going to be comfortable owning notable engineering and construction exposure within their equity portfolios.

"As such, RemainCo will be an investable name for a broader universe of buy-siders, post-spin," the Tudor Pickering Holt analysts said.

Pferdehirt said one of the mistakes in the past has been to over-integrate. "We understand the market pretty clearly, and we understand the limitations of an integrated offering," he said. "When you over-integrate a customer sees that as you being greedy," he said.

"We are a humble company," he said. "We like to integrate where it makes clear, technical, and commercial sense, not just bundling."

Pferdehirt said he sees a clear roadmap to the completion of the transaction by the early part of next year.

Following the split, SpinCo. will trade on the Euronext Paris Exchange and RemainCo. will trade on both the NYSE and the Euronext Paris Exchange. All outstanding shares of SpinCo. will be distributed to existing shareholders of TechnipFMC when the separation is complete.

TechnipFMC's stock price on the NYSE jumped 6.7% immediately following the Aug. 26 announcement of the split but tempered the gains to close at $24.10 per share on Aug. 26.