<PAGE> 1
EXHIBIT (a)(5)
R&B FALCON PIK PREFERRED
TENDER
Discussion Materials
October 17, 2000
MORGAN STANLEY DEAN WITTER
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================================================================================
R&B FALCON PIK PREFERRED
TENDER
o THE SECURITY WILL BECOME CASH PAY UPON COMPLETION OF THE ACQUISITION
o CONVERSION TO CASH PAY PRODUCES A SIGNIFICANT PRICING IMPACT
o THE CLAWBACK PROVISION FURTHER REDUCES THE EXPECTED VALUE TO HOLDERS OF
RETAINING THE PREFERRED TO CALL DATE
PRICING IMPACT OF PIK VERSUS CASH PAY
================================================================================
o BASED ON THE MATHEMATICAL BOND CALCULATIONS AND CURRENT MARKET
CONDITIONS, PRICING THE TENDER AS A CASH PAY INSTRUMENT AT A SPREAD OF
T+0 BP WOULD PRODUCE A TENDER PRICE OF 131.19%
o COMBINING THE TENDER WITH THE EQUITY CLAWBACK WOULD PRODUCE A BLENDED
PRICE OF 126.27% TO PREFERRED HOLDERS
<TABLE>
<CAPTION>
TERMS TENDER ASSUMPTIONS
<S> <C>
o Discount Yield/Coupon: 13.875% o Assumed Settlement Date: 12/01/2000
o Call Date: 05/01/2004 o Assumed First Cash Pay Date: 05/01/2001
o Call Price: 106.9375% o US Treasury Yield to Call: 5.90%
o Clawback Amount: $105,000,000 o Principal as of 11/01/2000: $369,343,100
o Clawback Price: 113.875% o Percentage of PIK Clawed: 28.4%
</TABLE>
<TABLE>
<CAPTION>
SPREAD TO UST (BP) YIELD TO CALL REMAIN PIK TO CALL DATE CASH PAY TO CALL DATE(*) BLENDED PIK BLENDED CASH PAY
------------------ ------------- ----------------------- ------------------------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
T-100 4.900% 145.95% 135.07% 136.83% 129.05%
T-50 5.400% 143.51% 133.11% 135.08% 127.65%
----- ----- ------ ------ ------ ------
T+0 5.900% 141.11% 131.19% 133.37% 126.27%
----- ----- ------ ------ ------ ------
T+50 6.400% 138.75% 129.30% 131.68% 124.91%
T+100 6.900% 136.44% 127.44% 130.03% 123.58%
T+150 7.400% 134.17% 125.61% 128.40% 122.27%
T+200 7.900% 131.94% 123.81% 126.80% 120.98%
===== ===== ====== ====== ====== ======
</TABLE>
NOTE All prices reflect current market conditions and are subject to change.
Pricing assumes US Treasury yield to call of 5.90%.
MORGAN STANLEY DEAN WITTER 1
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================================================================================
R&B FALCON PIK PREFERRED
TENDER
o PRIOR TO THE MERGER ANNOUNCEMENT, THE SECURITIES WERE TRADING AT 115% -
118%
o INVESTORS REJECTING THE TENDER OFFER ARE EXPOSED TO THE FOLLOWING
EVENTS:
1) A PORTION OF THEIR POSITION BEING CLAWED AT 113.875%
2) SECURITY ASSUMED BY RIG SUBSIDIARY; NON-CLAWED PREFERRED
SECURITY'S ESTIMATED TRADING PRICE WOULD BE 123% - 125% (ASSUMING
BBB RATINGS)
3) ACQUISITION NOT COMPLETED; THE SECURITY'S PRICE WOULD RETREAT TO
PRE-MERGER LEVELS
ECONOMIC RATIONALE FOR PREFERRED HOLDERS
================================================================================
<TABLE>
<CAPTION>
PRICING COMPARISON PRICE (% PAR) PRICE (% PAR) PRICE (% PAR)
------------------ ------------- ------------- -------------
<S> <C> <C> <C>
Est Price if Acquisition Not Completed 116.08%
Blended Value Including Clawback 115.45%
------
Est Price if Acquisition Completed, Preferred Remains Outstanding 123.81%
Blended Value 120.98%
------
Tender Price T + 0, Cash Pay on 05/01/2001 131.19%
Blended Value 126.27%
------
</TABLE>
NOTE All prices reflect current market conditions and are subject to change.
Pricing assumes US Treasury yield to call of 5.90%.
MORGAN STANLEY DEAN WITTER 2
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================================================================================
R&B FALCON PIK PREFERRED
TENDER
TENDER PRICING RATIONALE
================================================================================
o The majority of High Yield tenders are priced at T + 50 bp to the first
call date
o Because no covenant restrictions exist that prevent the acquiror from
converting the preferreds to cash pay, it is justified to price the tender
as a cash pay security
o Preferred holders are receiving appropriate compensation for the following
reasons:
- pricing the tender at T + 0 bp represents a greater tender premium
than traditionally received
- the issuer's and the acquiror's willingness to purchase all the
securities at the tender price and potentially forego using the equity
clawback to purchase securities at 113.875%
- the acquisition is not is conditional upon bondholder consent and,
thus, preferred holders' actual negotiating leverage is less than in a
traditional conditional High Yield tender
o The August 1998 tender for Teleport Communications Group's 11.125% senior
discount notes due July 1, 2007 (zero coupon until July 1, 2001) represents
the best precedent transaction to the PIK preferreds
- AT&T acquired Teleport in 1998
- the tender was priced at T+12.5 bp to the call date on a cash pay
basis
- negotiations with bondholders were hostile due to the difference in
tender price based on PIK pay versus cash pay
- after extensive negotiations, the transaction was completed
NOTE All prices reflect current market conditions and are subject to change.
Pricing assumes US Treasury yield to call of 5.90%.
MORGAN STANLEY DEAN WITTER 3
<PAGE> 5
================================================================================
R&B FALCON PIK PREFERRED
TENDER
SUMMARY
================================================================================
o MSDW understands that both the issuer's and acquiror's desire is to retire
100% of the outstanding PIK Preferred is based on the following factors:
- positive EPS impact (approximately $0.21/share) of retiring the
Preferred
- eliminate restrictive covenants
- eliminate the need to exchange these securities into debt after the
acquisition
o The following current market factors could also have an impact on the
tender negotiations:
- pricing impact of valuing the PIK Preferred on a cash pay basis
- recent unwillingness for holders to sell bonds at 128%
- tendency for bondholders to attempt negotiating for greater tender
premiums at any price
- precedent set by Teleport/AT&T transaction
o While Morgan Stanley and Goldman Sachs have not made the final
determination of the price at which to launch the tender offer, the
preliminary joint recommendation will be most likely in the area of 130%
o A tender price of 130% is equivalent to clawing $105mm at 113.875% and
tendering for the remaining securities at a tender price of 136.44%.
NOTE All prices reflect current market conditions and are subject to change.
Pricing assumes US Treasury yield to call of 5.90%.
MORGAN STANLEY DEAN WITTER 4
<PAGE> 6
================================================================================
R&B FALCON PIK PREFERRED
TENDER
CASH FLOW COMPARISON OF PIK VS. CASH PAY
================================================================================
<TABLE>
<S> <C> <C> <C> <C> <C>
Original Principal $300,000,000 Settlement 12/1/2000 12/1/2000
Dividend $13.875% Current Principal $369,343,100 Current Principal $369,343,100
Call Date 5/1/2004
Cash Pay Date 2/1/2001
Issue Date 4/22/1999 Cash Principal $382,154,689
First PIK $11,446,875 Principal Called $408,666,670
Call Price 106.9375% YIELD 5.90%
Principal Called $636,632,566 PVCF $521,172,747 PVCF $484,540,622
PRICE % 141.11% PRICE % 131.19%
Clawback Princ. $105,000,000
Clawback Price 113.8750%
</TABLE>
<TABLE>
<CAPTION>
CONVERT TO CASH
PIK PRINCIPAL REMAIN PIK 8/1
<S> <C> <C> <C> <C>
11/1/2000 $369,343,100
12/1/2000 $369,343,100 12/1/2000 12/1/2000
2/1/2001 $382,154,689 2/1/2001 2/1/2001 $0
5/1/2001 $395,410,679 5/1/2001 5/1/2001 $13,255,991
8/1/2001 $409,126,487 8/1/2001 8/1/2001 $13,255,991
11/1/2001 $423,318,062 11/1/2001 11/1/2001 $13,255,991
2/1/2002 $438,001,908 2/1/2002 2/1/2002 $13,255,991
5/1/2002 $453,195,099 5/1/2002 5/1/2002 $13,255,991
8/1/2002 $468,915,304 8/1/2002 8/1/2002 $13,255,991
11/1/2002 $485,180,803 11/1/2002 11/1/2002 $13,255,991
2/1/2003 $502,010,512 2/1/2003 2/1/2003 $13,255,991
5/1/2003 $519,424,002 5/1/2003 5/1/2003 $13,255,991
8/1/2003 $537,441,522 8/1/2003 8/1/2003 $13,255,991
11/1/2003 $556,084,025 11/1/2003 11/1/2003 $13,255,991
2/1/2004 $575,373,190 2/1/2004 2/1/2004 $13,255,991
5/1/2004 $595,331,447 5/1/2004 $636,632,566.00 5/1/2004 $421,922,661
<CAPTION>
DISC. FACTOR DCF
<S> <C> <C>
11/1/2000 Accr. Interest
12/1/2000 ($ 4,270,530)
2/1/2001 0.990 $ 0
5/1/2001 0.976 $12,936,410
8/1/2001 0.962 $12,748,371
11/1/2001 0.948 $12,563,066
2/1/2002 0.934 $12,380,454
5/1/2002 0.920 $12,200,497
8/1/2002 0.907 $12,023,155
11/1/2002 0.894 $11,848,392
2/1/2003 0.881 $11,676,168
5/1/2003 0.868 $11,506,448
8/1/2003 0.855 $11,339,195
11/1/2003 0.843 $11,174,373
2/1/2004 0.831 $11,011,947
5/1/2004 0.819 $345,402,676
</TABLE>
MORGAN STANLEY DEAN WITTER 5
<PAGE> 7
================================================================================
R&B FALCON PIK PREFERRED
TENDER
TIMELINE FOR RETIREMENT OF PIK PREFERRED
================================================================================
<TABLE>
<CAPTION>
ACTION | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C>
ISSUE COMMENCE SETTLE ANNOUNCE TENDER TENDER CLAWBACK
EQUITY TENDER EQUITY CLAWBACK EXPIRATION SETTLEMENT PREFERRED
</TABLE>
<TABLE>
<CAPTION>
TENTATIVE
DATE | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C>
OCT 20 OCT 23 OCT 26 NOV 10 NOV 17 NOV 22 DEC 11
(BUSINESS (45 DAYS FROM
DAY 20) EQUITY SETTLEMENT)
</TABLE>
MORGAN STANLEY DEAN WITTER 6
