SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: May 13, 1996
READING & BATES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-5587 73-0642271
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
901 Threadneedle, Suite 200, Houston, TX 77079
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 496-5000
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit 99 - Press Release dated May 12, 1996 - Fact sheet
with respect to Reading & Bates' proposal to
acquire Transocean ASA.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
READING & BATES CORPORATION
By /s/T. W. Nagle
------------------------
T. W. Nagle
Executive Vice President,
Finance and Administration
Dated: May 13, 1996
EXHIBIT 99
FOR IMMEDIATE RELEASE Contact: Mr. Charles R. Ofner
(713) 496-5000
May 12, 1996, Houston, Texas....Reading & Bates Corporation (RB-NYSE)
released the following with respect to its proposal to acquire Transocean
ASA:
In response to inquiries that may reflect an incomplete understanding
among investors and the press as to the rules applicable to acquisitions
in Norway and the structure of its proposal to Transocean ASA, Reading &
Bates issued a fact sheet to clarify the situation. The fact sheet
explains key aspects of the proposal such as minimum acceptance criteria,
cash vs stock, and pooling accounting. A complete text of the fact
sheet is attached.
TEXT OF FACT SHEET RELATED TO ITS PROPOSAL TO COMBINE WITH TRANSOCEAN
RELEASED BY READING & BATES ON May 12, 1996
Authority of Board in Norway: Transocean's Board has no authority to
bind its shareholders to accept either of the competing proposals, nor can
the board preclude Reading & Bates from proceeding with its proposal and
presenting it directly to Transocean's shareholders. If the competing
proposals are presented to shareholders, each shareholder will make its
own individual decision.
Minimum Acceptance Condition: The Reading & Bates proposal contemplates
acceptance by 90% of Transocean's shares, whereas Transocean said that
Sonat "indicated a willingness to accept a much lower acceptance rate."
Reading & Bates believes that, as a result of applicable Norwegian legal
requirements, any lower minimum may result in an overly leveraged combined
company that would have insufficient financial flexibility to compete in a
highly capital intensive and cyclical industry.
Under Norwegian law, a purchaser of more than 45% of a publicly listed
Norwegian company must make an offer to purchase the balance in cash.
Therefore, a bidder that sets a two thirds minimum and that acquires two
thirds of Transocean for stock would be required to tender for the
remaining one third in cash. And if the bidder's two thirds offer
contained a 20% cash component, the total cash requirement could be as
high as 46.6% of the purchase price. Assuming a total transaction cost
of $1.5 billion and Transocean debt of $250 million, the new company will
have added $950 million in debt to its existing debt levels. We believe
that this much potential debt is excessive in an industry characterized by
cyclicality and high capital expenditure requirements. We fail to see how
these potential debt levels would result in a "financially superior"
company as suggested in a recent Sonat press release.
Further, in Norway, a buyer of a company must attain a threshold of 90%
in order to have the right to purchase the interest of the remaining
shareholders. If less than 90% is achieved, there is no effective
ability to ensure the acquisition of 100% of the stock; and of course
this means the acquiring holding company could be unable to effect the
usual transfers of cash to and from the company, and, in fact would
need to distribute cash pro rata to minority shareholders. Additionally,
there would be serious potential conflicts of interest between the new
company and Transocean's remaining shareholders because both compete in
the same industry. Effectively, at less than 90% ownership one is left
with two interlocking but separate companies. In summary, we feel that it
is only prudent, from a corporate finance and governance point of view, as
well as to keep leverage reasonable, to have a 90% minimum acceptance
condition. Reading & Bates will, as is customary in Norway, reserve the
right to reduce the minimum acceptance condition, but intends to decide
whether this would be in the interest of shareholders on the basis of the
circumstances at the time. We are confident that, in practice, our 90%
minimum acceptance requirement will be satisfied.
Cash vs stock: There has been considerable discussion regarding the fact
that Reading & Bates' proposal is for 100% stock while Sonat's is 80%
stock and 20% cash. In our view, an all stock transaction makes sense for
five main reasons:
** The market for these stocks provides ample liquidity for
shareholders who desire to receive cash for their shareholdings;
** It ensures that leverage is not excessive in the combined entity;
** It passes on to both sets of shareholders equally the synergies
of the transaction--cash acts as a "drag" on total value as the
combined company's security increases in value;
** An 80%/20% transaction precludes pooling;
** An all stock offer is designed to be entirely tax free to the
holders of most of Transocean's stock; any cash component would
be taxable.
Also please note that the requirement to make a cash offer to purchase
the minority means a 100% all stock offer may in any event have 10%
effective cash component.
Pooling: Because pooling avoids very substantial charges to earnings as
compared to purchase accounting, the combined company would have more net
income per dollar of market value than under purchase accounting. While
at present we agree that the offshore drilling sector is valued primarily
on cash flow, we believe it likely that as the industry generates higher
earnings, more consideration will be given to P/E's, and we do not feel
it appropriate to unnecessarily disadvantage the new entity with large
earnings dilution going forward. It is not possible to predict precisely
how our sector's stocks will be valued in the future; we do know that
significant earnings dilution has no ability to help the new entity-- it
can only hurt it.
There are two basic financial accounting methods for accounting for
business combinations, pooling and purchase accounting. In the purchase
method, the combination is viewed as one company acquiring another. The
purchase price of the acquired company is allocated to the net assets
obtained based on their fair value, with any excess purchase price over
net assets acquired being recorded as goodwill which is to be charged
against future earnings. In a pooling, the transaction is viewed as
merger or pooling of the ownership interest into a single entity.
Accordingly, pooling effectively merges the two balance sheets at
previously recorded amounts.
If the new company is required to use purchase accounting, it will incur
very substantial dilution to earnings. One of the requirements for
pooling is that at least 90% of the acquisition be for voting common
stock. Reading & Bates' proposal is designed to permit the use of pooling
accounting if all the other requirements for its use can be satisfied.
Sonat's proposal requires it to use purchase accounting. And, our
proposal is not strictly conditioned on the availability of pooling, but
we see no benefit to shareholders from precluding its availability as the
Sonat proposal does.
Reading & Bates is a New York Stock Exchange listed company, engaging in
offshore drilling services throughout the world. Its wholly owned
subsidiary, Reading & Bates Development Co., provides technical,
construction and project management services, and floating production
systems to the upstream offshore oil and gas industry worldwide.
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