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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
AMENDMENT NO. 1
TO
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
_________________
J. RAY MCDERMOTT, S.A.
(Name of Subject Company)
J. RAY MCDERMOTT, S.A.
(Name of Person Filing Statement)
_________________
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
P 64658 10 0
(CUSIP Number of Class of Securities)
_________________
S. W. MURPHY
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
J. RAY MCDERMOTT, S.A.
1450 POYDRAS STREET
NEW ORLEANS, LOUISIANA 70112-6050
(504) 587-5300
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person filing statement)
_________________
Copy to:
R. JOEL SWANSON
BAKER & BOTTS, L.L.P.
3000 ONE SHELL PLAZA
HOUSTON, TEXAS 77002-4995
(713) 229-1234
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This Amendment No. 1 (this "Amendment") amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9 originally filed on May
13, 1999 (the "Schedule 14D-9") by J. Ray McDermott, S.A., a Panama corporation
(the "Company"), relating to the offer to purchase all of the Company's
outstanding shares of common stock, par value $.01 per share (the "Shares"),
commenced by McDermott Acquisition Company, Inc. ("Purchaser"), a Panama
corporation and a wholly owned subsidiary of McDermott International, Inc., a
Panama corporation ("Parent"), on May 13, 1999.
All capitalized terms used in this Amendment without definition have the
meanings attributed to them in the Schedule 14D-9.
The item of the Schedule 14D-9 set forth below is hereby amended as
follows:
ITEM 4--THE SOLICITATION OR RECOMMENDATION.
The information set forth under the caption "Background of the Offer;
Recommendation of the Independent Committee and the Company Board" in Item 4(b)
of the Schedule 14D-9 is hereby amended and restated in its entirety as follows:
BACKGROUND OF THE OFFER; RECOMMENDATION OF THE INDEPENDENT COMMITTEE AND
THE COMPANY BOARD
On January 31, 1995, Parent and Offshore Pipelines, Inc. ("OPI")
consummated a transaction (the "OPI Merger") pursuant to which Parent
contributed its worldwide marine construction businesses to the Company, a
newly-formed Panama corporation, and OPI was merged into a wholly-owned
subsidiary of the Company. As a result of the OPI Merger, the shareholders
of OPI acquired approximately 36% of the outstanding Shares, and Parent
retained the remaining 64% of the outstanding Shares and all of the
Preferred Stock.
In connection with the OPI Merger, the Company Board established the
Independent Committee, comprised of directors who were not present or
former officers or employees of Parent or the Company as an oversight
committee to review the fairness to the Company and its public shareholders
of certain transactions between the Company and Parent. At the same time,
Parent and the Company agreed that the Company would not take certain
actions without the approval of the Independent Committee or the
affirmative vote of the holders of a majority of the outstanding voting
stock of the Company owned by persons other than Parent and its
subsidiaries. Although this agreement expired in January 1998, the
Independent Committee continued to review and approve all significant
transactions between the Company and Parent.
Over the last four years, representatives of the Company, the
Independent Committee and Parent have had general conversations from time
to time concerning the Company's strategic alternatives and Parent's
investment in the Company.
At a meeting of the Company Board on November 11, 1998, Mr. Roger E.
Tetrault, Chairman and Chief Executive Officer of Parent and the Company,
advised the Company Board that Parent was considering various strategic
alternatives, including the possible acquisition of the publicly-held
Shares. No terms were discussed. Mr. Tetrault identified possible
benefits that could result from a combination of the two companies. He
also indicated that if Parent decided to make such a proposal, it would
likely be made in late February or early March 1999 and that Parent would
advise the Company Board upon completion of its review. The Company Board
determined that any such proposal would be considered by the Independent
Committee. The Independent Committee consisted of Messrs. William J.
(Bill) Johnson (Chairman), Rick L. Burdick, Sean C. O'Keefe, Cedric E.
Ritchie and Robert L. Howard. It was determined that Mr. Howard would
recuse himself from participation on the Independent Committee in
connection with its consideration of any proposal made by Parent because of
his position as a member of the Parent Board of Directors (the "Parent
Board"). None
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of the four members of the Independent Committee who participated in the
consideration of the proposals from Parent were present or former
employees, officers or directors of Parent or employees or officers of the
Company.
On November 13, 1998, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") made a presentation to the Parent Board
about various strategic alternatives, including a possible acquisition by
Parent of the publicly-held Shares. Merrill Lynch suggested that Parent
could acquire the publicly-held Shares of the Company using either cash or
common stock of Parent ("Parent Stock") as consideration. Merrill Lynch
indicated that combining Parent and the Company would be beneficial because
the combined entity would eliminate expenses associated with the separate
management of two publicly traded companies, receive greater coverage by
equity research analysts and create a more efficient organizational
structure. During the meeting, the Parent Board empaneled a Finance
Committee, consisting of Messrs. John W. Johnstone, Jr. (Chairman), Philip
J. Burguieres, William McCollam, Jr. and Bruce DeMars (the "Finance
Committee").
On November 25, 1998, the Finance Committee discussed several
strategic initiatives of Parent. The Finance Committee reaffirmed its
commitment to complete its review of all of the strategic initiatives
currently under consideration by the Finance Committee, prior to making a
decision whether or not to seek to acquire the publicly-held Shares of the
Company. Each member of the Finance Committee confirmed that he did not own
any Shares.
In December 1998, Parent engaged Davis Polk & Wardwell ("Davis Polk")
as its legal advisor with respect to the strategic initiatives under
review.
In early December 1998, Mr. Tetrault suggested that the Independent
Committee should consider engaging financial and legal advisors in
anticipation of a possible proposal from Parent.
The Independent Committee engaged Baker & Botts, L.L.P. ("Baker &
Botts") as its legal advisor on December 17, 1998 and Simmons as its
financial advisor on January 5, 1999.
On January 4, 1999, the Finance Committee concluded that it should
analyze and develop alternatives for acquiring the publicly-held Shares.
On January 20, 1999, the Finance Committee engaged Merrill Lynch as its
financial advisor.
The Independent Committee met with its legal and financial advisors in
Houston, Texas, on January 12, 1999. At that meeting, Baker & Botts
addressed the Independent Committee concerning their duties and
responsibilities under applicable law. The members of the Independent
Committee acknowledged that in considering and negotiating any transaction
with Parent their responsibility was to act in the best interests of the
Company's public shareholders. The members of the Independent Committee
determined that consideration of any business combination between the
Company and Parent was within the Independent Committee's scope of
authority, but indicated that the Company Board should consider a
resolution confirming the Independent Committee's authority to act on any
such transaction. During this meeting, Simmons outlined the scope of their
anticipated activities in advising the Independent Committee, including
providing a financial analysis of any proposals which may be received from
Parent and an evaluation of possible alternative transactions, providing,
if requested, a fairness opinion as to a business combination between the
Company and Parent and assisting the Independent Committee in negotiating
with Parent. The Independent Committee decided to wait until it received a
proposal from Parent before beginning discussions with Parent.
On February 1, 1999, the Finance Committee met with Merrill Lynch to
discuss alternatives for acquiring the publicly-held Shares of the Company.
Merrill Lynch reviewed with the Finance Committee its study and evaluation
of the Company, Parent and several proposed transactions, which included
analyses of comparable companies, comparable transactions, the values of
the Company and Parent, the relative values
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of the two companies, premiums in a stock for stock transaction and
premiums in similar public transactions. The methodologies used in
conducting these analyses were substantially the same as the methodologies
set forth below under "Opinion of Financial Advisor to the Finance
Committee" in the Schedule 14D-1. Merrill Lynch's presentations were based
primarily on an assumed stock for stock transaction and an assumed offer
price of $27.31 per publicly-traded Share. Such a transaction would have
required Parent to issue approximately 19.3 million new shares of Parent
Stock and represented approximately a 15% premium to the Share price as of
February 1, 1999. Merrill Lynch also provided an analysis of the pro forma
effect on Parent's projected earnings per share of an acquisition of the
publicly-held Shares in a stock for stock transaction. Assuming that the
goodwill associated with combining Parent and the Company would be
amortized over 15 or 30 years, this analysis indicated that a stock for
stock transaction with an assumed $27.31 offer price would dilute Parent's
fiscal year 2000 earnings per share by 16.8% and 12.5%, respectively.
This information was presented on the following day to the Parent Board.
On February 17, 1999, Parent and the Company executed a
confidentiality agreement (the "Confidentiality Agreement"), under which
Parent agreed to provide to the Company certain confidential information
relating to its operations and the Company agreed to keep all nonpublic
information received from Parent in confidence, subject to certain
exceptions.
On March 4, 1999, Simmons met with Messrs. Johnson and O'Keefe to
discuss their analysis to date, which included analyses of the Company,
Parent, a potential business combination of the two companies and possible
alternative transactions. The analysis of each of the Company and Parent
included a review of its history, its financial and operating performance
and the financial performance of comparable companies, its assets and
liabilities (including contingent liabilities) and its operating markets.
The methodologies used in conducting an analysis of a potential combination
of the two companies were substantially the same methodologies used in
connection with the fairness opinion delivered by Simmons to the
Independent Committee on May 6, 1999, which are set forth below under
"Opinion of Financial Advisor to the Independent Committee." Because the
Initial Proposal involved the receipt of Parent Stock as consideration,
Simmons used similar methodologies to value Parent and Parent Stock.
Finally, Simmons described its preliminary views of the positive and
negative aspects of alternative transactions, including continued ownership
by the public shareholders combined with the implementation of a strategic
acquisition program funded by the Company's cash reserves, a private sale
of the Company, a private sale of the publicly-held Shares, a repurchase by
the Company of the publicly-held Shares, a repurchase by the Company of the
Shares held by Parent, a spin-off of the Company and a secondary offering
of Shares. Simmons noted that, because of Parent's controlling ownership
interest in the Company, any such alternative transaction would be
dependent on Parent's concurrence in the Company's decision to pursue an
alternative transaction. On March 9, 1999, Simmons met with Mr. Burdick to
review the foregoing preliminary analysis.
At a meeting on March 9, 1999, the Finance Committee considered
various alternatives for acquiring the publicly-held Shares and determined
to make a specific proposal to the Independent Committee.
On March 10, 1999, the Finance Committee delivered its initial
proposal to the Independent Committee. The proposal involved a merger of a
newly-formed subsidiary of Parent into the Company, whereby each Share not
owned by Parent would become 1.15 shares of Parent Stock and the Company
would become a wholly-owned subsidiary of Parent (the "Initial Proposal").
The Initial Proposal was disclosed to the public on March 10, 1999. In
response, the Independent Committee announced that it would consider the
Initial Proposal.
On March 11, 1999, the Company Board adopted resolutions confirming
the Independent Committee's authority to act with respect to any proposal
for a business combination between Parent and the Company.
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On March 15, 1999, representatives of Merrill Lynch and Simmons met to
discuss the Initial Proposal. During this meeting, Merrill Lynch presented
an overview of the merits of the Initial Proposal. Merrill Lynch and
Simmons discussed, among other things, the small public float in the
Shares, the confusion in the market perception of Parent and the rationale
for the combination (including cost savings and increased analyst and
institutional interest in Parent). Merrill Lynch noted that the 1.15
shares of Parent Stock that would be received in the Initial Proposal by
the Company's minority shareholders represented a 8.5% premium to the
closing Share price on the day preceding the Initial Proposal and a 16.2%
premium to the closing Share price at the time of the announcement of the
Initial Proposal. Merrill Lynch also presented the results of its
comparable company trading analysis, which suggested that the Shares were
overvalued in the market in relation to other comparable companies.
Merrill Lynch also discussed with Simmons recent third-party forecasts,
which indicated a greater decline in both Parent's and the Company's
earnings per share for fiscal years 2000 and 2001 than had been previously
forecasted.
Because the Initial Proposal involved an exchange of stock, both
companies and their advisors requested and undertook due diligence. On
March 17, 1999, management of Parent made a presentation and answered
questions posed by the Company's advisors. On March 22, 1999, the
Company's management made a similar presentation. Further due diligence
was conducted during the following weeks.
The Independent Committee met with its advisors on April 1, 1999. At
that meeting, representatives of Baker & Botts discussed the duties and
responsibilities of the members of the Independent Committee in connection
with their consideration of a business combination with Parent, stressing
the importance of actively and independently representing the interests of
the minority shareholders of the Company. Representatives of Simmons began
a discussion of the Initial Proposal by indicating that a valuation of
Parent was complicated because of Parent's contingent liabilities. Simmons
indicated that these contingent liabilities were not easily quantified, but
should be considered in any evaluation of Parent. Simmons then reviewed
with the Independent Committee its study and evaluation of the Company,
Parent and the Initial Proposal, which included an update of their March 4,
1999 analysis provided to the members of the Independent Committee.
Simmons also discussed the potential positive aspects (including a premium
to the current market price, improved investor profile, improved profile in
capital markets and the benefits from the elimination of duplicative costs)
and negative aspects (including potential dilution of any future recovery
in the oilfield service industry, the uncertainty of Parent's contingent
liabilities and less access to excess cash) to the Company's minority
shareholders of completing a business combination with Parent, assuming the
receipt of Parent Stock as consideration. Simmons calculated the premium
implied by the Initial Proposal based on stock prices over time periods of
one day, one week and four weeks prior to the announcement of the Initial
Proposal and concluded that (1) the nominal premium ranged from 8.5% to
29.7%, (2) after adjustment for the recovery of oilfield service company
stock prices and elimination of the effect of the announcement of the
Initial Proposal, the premium ranged from 7.8% to 9.9% and (3) after such
adjustment and if no premium was attached to the Company's substantial cash
reserves, the premium ranged from 14.8% to 19.2%. Simmons also indicated
that they received an analysis prepared by Merrill Lynch in support of the
Initial Proposal. In Simmons' view, that analysis did not appropriately
value the Company's substantial cash reserves or take into consideration
the recent recovery in the market for oilfield service company stocks.
After an extensive discussion of the Simmons analysis and the terms of the
Initial Proposal, the Independent Committee determined that the Initial
Proposal was inadequate because of, among other things, the substantial
increase in the market price for oil service stocks since the date the
Initial Proposal was delivered and the Independent Committee's belief that
sufficient value had not been given to the Company's substantial excess
cash. The Independent Committee authorized Mr. Bill Johnson (Chairman of
the Independent Committee) to contact Mr. John Johnstone (Chairman of the
Finance Committee) to arrange a meeting between the financial advisors of
each Committee.
Unable to reach Mr. Johnstone, Mr. Johnson contacted Mr. Philip
Burguieres, another member of the Finance Committee, on April 1, 1999 to
inform him that the Independent Committee had determined that the
Initial Proposal was inadequate and to suggest that Simmons and Merrill
Lynch meet to discuss their
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valuations. Mr. Burguieres agreed to authorize Merrill Lynch to meet with
Simmons, and Mr. Johnson instructed Simmons to arrange the meeting.
On April 6, 1999, Simmons and Merrill Lynch met to discuss their
respective valuations of the Company and Parent. They discussed the
Initial Proposal and alternatives, including combinations that would
involve cash and stock or all cash as consideration. Simmons indicated
that it could not recommend the Initial Proposal. Merrill Lynch left the
meeting with the impression that Simmons would be willing to recommend to
the Independent Committee an offer of 1.15 shares of Parent Stock plus $4
in cash for each Share.
On April 8, 1999, the Finance Committee met with Merrill Lynch to
review the results of the April 6 meeting between Merrill Lynch and
Simmons. The Finance Committee also discussed with Merrill Lynch the
increase in oilfield service company stock prices since the announcement of
the Initial Proposal. Merrill Lynch attributed the increase primarily to
OPEC's March 10, 1999 announcement to decrease oil production. Merrill
Lynch also updated the analyses contained in its February 1, 1999
presentation to the Finance Committee using current market information.
Merrill Lynch's revised dilution analysis indicated that a part-stock,
part-cash transaction would be less dilutive to Parent's projected earnings
per share than an all-stock transaction and that an all-cash transaction
would be significantly less dilutive to Parent's projected earnings per
share than either of the other two alternatives. Based on Merrill Lynch's
understanding of the position of the Independent Committee and the Finance
Committee's discussions with its financial advisor, the Finance Committee
decided to increase its offer to 1.15 shares of Parent Stock plus $1.50 in
cash for each Share.
On April 9, 1999, Merrill Lynch informed Simmons that the Finance
Committee had increased its offer to 1.15 shares of Parent Stock plus $1.50
in cash per Share. Merrill Lynch also told Simmons that the Finance
Committee was very concerned about the possibility that any transaction
with the Company might cause dilution to Parent's per share earnings.
Simmons communicated this to the Independent Committee, which instructed
Simmons to develop an analysis of the dilution to Parent's per share
earnings assuming that the Company's excess cash was invested at a rate of
return greater than money market rates of return.
On April 9, 1999, Baker & Botts and the Independent Committee received
from Davis Polk an initial draft of a proposed merger agreement.
Concerned that the valuations of the two committees may still be too
far apart for a transaction to materialize, the Independent Committee
instructed Simmons to contact Merrill Lynch to determine if Parent would
consider selling its Shares and, if so, at what price. Simmons was
informed that Parent was not interested in soliciting offers to purchase
its Shares.
On April 13, 1999, members of the Independent Committee met by
telephone with their advisors. Simmons' dilution analysis was reviewed and
discussed. The dilution analysis indicated that under certain rate of
return assumptions, Parent could significantly reduce its pro forma
projected earnings per share dilution by investing the Company's excess
cash in capital projects or acquisitions rather than continuing to earn
money market rates of return. Simmons also presented an analysis of a
transaction whereby the Company would repurchase the Shares from its public
shareholders. This analysis showed that such a transaction could be
accretive to Parent's earnings per share and cash flow per share. Simmons
stated that this analysis could reduce the Finance Committee's concerns
regarding the impact of an acquisition by Parent of the publicly-held
Shares on Parent's earnings per share. Members of the Independent
Committee discussed their concern about the proper valuation of Parent's
contingent liabilities. After this discussion, members of the Independent
Committee decided to present to the Finance Committee a counteroffer of
1.15 shares of Parent Stock and $5 in cash per Share. They also instructed
Baker & Botts on several points to be included in the Independent
Committee's comments on the proposed merger agreement, including the
Independent Committee's position that the proposed transaction should be
conditioned on the affirmative vote of holders of a majority of the
outstanding Shares other than Shares beneficially owned by Parent.
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On April 14, 1999, Simmons met with Merrill Lynch to review its
dilution analysis and present the Independent Committee's counteroffer.
Merrill Lynch expressed its concern that the proposed counteroffer would
substantially dilute the Parent's future earnings. Simmons suggested that
members of the two committees and their financial advisors meet to discuss
their differences and try to reach a resolution.
On April 15, 1999, the Independent Committee's comments on the initial
draft of the merger agreement were delivered to Davis Polk.
On April 16, 1999, the Finance Committee met to discuss the
counteroffer from the Independent Committee. At the end of the meeting,
the Finance Committee asked its advisors to seek clarification of the terms
of the counteroffer from the advisors to the Independent Committee.
On April 16, 1999, Merrill Lynch and Simmons discussed the terms of
the counteroffer.
On April 19, 1999, the Finance Committee reconvened to hear the report
from its advisors concerning their discussions with the advisors to the
Independent Committee. Merrill Lynch reported that Simmons was no longer
prepared to recommend to the Independent Committee an offer of 1.15 shares
of Parent Stock plus $4 in cash for each Share. After extended
discussions, the Finance Committee unanimously determined to terminate
discussions with the Independent Committee.
Promptly after the meeting, Davis Polk informed Baker & Botts that the
Finance Committee had decided to terminate the merger discussions with the
Independent Committee because of a failure to reach agreement on the
financial terms of the transaction. A press release to that effect was
issued the following day.
After discussions with individual members of the Independent Committee
and with its legal and financial advisors, Mr. Bill Johnson contacted Mr.
Philip Burguieres on April 22, 1999 in an attempt to restart discussions
between the two committees.
On April 29, 1999 Mr. Johnson met with Simmons to discuss Simmons'
comparison of the accretion/dilution to Parent's earnings per share based
on various transaction values and structures, including various
combinations of stock, cash and warrants to purchase stock This analysis
indicated that alternative transactions could reduce dilution to Parent's
earnings per share.
On April 30, the Finance Committee convened and decided to authorize
Mr. Burguieres to meet with Mr. Johnson.
On May 1, 1999, Mr. Burguieres and Merrill Lynch met to discuss
Merrill Lynch's analysis of the pro forma effect on Parent's projected
earnings per share of an all cash acquisition of the publicly-held Shares
at various consideration values. This analysis showed the dilutive effect
to Parent's fiscal year 2000 earnings increasing from 12.7% to 18.6% using
consideration values ranging from $31 per Share to $36 per Share. Merrill
Lynch also provided an analysis of premiums paid in minority interest
transactions. In the aggregate, this analysis indicated relevant merger
premiums of between 15.0% and 25.0%.
Messrs. Johnson and Burguieres met on May 4, 1999. They discussed the
recent increase in the price of the Shares, the valuation of the Company's
excess cash and the opportunity to earn higher returns, the possible
dilution to Parent's earnings per share and other factors relating to
value. After further discussion, Messrs. Johnson and Burguieres agreed to
recommend to their respective committees an all cash transaction at $35.62
per Share.
Later that day, the Finance Committee met to review the report and
recommendation from Mr. Burguieres. Merrill Lynch advised the Finance
Committee that they were of the opinion that the
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consideration proposed to be paid to the holders of Shares (other than
Parent) was fair from a financial point of view to Parent. Merrill Lynch's
analyses were substantially the same as the analyses set forth below under
"Opinion of Financial Advisor to the Finance Committee" in the Schedule
14D-1. Based on the foregoing, the Finance Committee voted unanimously to
recommend the $35.62 all cash proposal to the full Board of Parent.
The Independent Committee met by telephone during the afternoon of May
4, 1999 with its legal and financial advisors. Mr. Johnson presented the
proposal to the Independent Committee, and Simmons provided certain updated
analyses of the Company and the terms of the proposed transaction.
Simmons' analyses were substantially the same as the analyses set forth
below under "Opinion of Financial Advisor to the Independent Committee."
Simmons informed the Independent Committee that it was prepared to deliver
a fairness opinion with respect to a transaction priced at $35.62 per
Share. Members of the Independent Committee noted that an all cash
transaction removed the risk associated with Parent's contingent
liabilities, a major concern raised by the Initial Proposal.
Representatives of Baker & Botts informed the Independent Committee of
discussions with Davis Polk regarding the revised terms of the proposed
merger. The Independent Committee instructed Baker & Botts regarding its
comments on the revised merger agreement, including that the proposed
transaction should be structured as a two step transaction with a tender
offer followed by a merger and that the tender offer should be conditioned
upon there being validly tendered and not withdrawn prior to the expiration
of the tender offer a number of Shares equal to at least a majority of the
outstanding Shares other than Shares beneficially owned by Parent. After
further discussion, the Independent Committee decided to defer action to a
later date allowing the Independent Committee members an additional
opportunity to consider the proposal and further review the extensive
materials provided by Simmons during the negotiation process.
On May 5, 1999, the full Board of Parent met to consider the $35.62
all cash proposal, the recommendation of the Finance Committee and the
advice of Merrill Lynch and Davis Polk. A detailed summary underlying
Merrill Lynch's opinion to the Parent Board is set forth below under
"Opinion of Financial Advisor to the Finance Committee" in the Schedule
14D-1. After a full discussion, the Board of Parent approved the proposal
subject to Mr. Tetrault being satisfied that the financing necessary to
consummate the transaction was available. Three directors who were also
directors of the Company (Messrs. Tetrault, Woolbert and Howard) indicated
that they were in favor of the proposal but, on advice of counsel,
abstained from voting.
Promptly thereafter, Parent commenced discussions with Citibank about
providing a $525 million facility to finance the transaction. On May 7,
1999, Citibank issued to Parent a commitment letter for the financing. See
"Financing of the Offer and the Merger." Mr. Tetrault determined that he
was now satisfied that the necessary financing was available.
On May 5, 1999, the Independent Committee met to again consider the
proposed transaction. Members of the Independent Committee discussed the
terms of the Merger Agreement, and representatives of Simmons reviewed and
updated their analysis of the fairness of the proposal. A detailed summary
of the analyses performed by Simmons is set forth below under "Opinion of
Financial Advisor to the Independent Committee." Simmons then rendered an
oral opinion (subsequently confirmed by delivery of a written opinion dated
May 6, 1999) to the effect that, as of such date and based upon and subject
to certain matters stated in such opinion, the consideration to be paid in
the Offer and the Merger was fair to the holders of Shares (other than
Parent) from a financial point of view. The Independent Committee then
unanimously determined that the terms of the Offer and the Merger are fair
to and in the best interests of the Company's shareholders (other than
Parent), and unanimously voted to recommend that the Company Board approve
the Merger Agreement and the transactions contemplated thereby, including
the Offer and the Merger. At the meeting, the Independent Committee
requested that Simmons update its analysis for purposes of a summary
presentation and confirmation of its oral opinion at a meeting of the
Company Board to be held on the following day.
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On May 6, 1999, the Company Board met to consider the Merger Agreement
and the transactions contemplated thereby. Mr. Johnson described the terms
of the Merger Agreement and indicated that the Independent Committee had
unanimously approved the Merger Agreement and recommended that the Company
Board approve the Merger Agreement. Representatives of Simmons described
their review and analysis of the transaction and confirmed its oral
fairness opinion provided to the Independent Committee on May 5, 1999.
Representatives of Baker & Botts then described the principal terms of the
Merger Agreement. After a full discussion, the Company Board accepted the
recommendation of the Independent Committee and (i) determined that the
terms of the Offer and the Merger were fair to and in the best interests of
the Company's shareholders (other than Parent), (ii) approved the Merger
Agreement and authorized the execution and delivery thereof and (iii)
determined to recommend that the shareholders of the Company tender their
Shares pursuant to the Offer and approve the Merger Agreement. Prior to
participating in the determinations and recommendations of the Company
Board, the members of the Company Board who were also directors or officers
of Parent identified their affiliations with Parent and noted that as a
result of such affiliations they had a potential conflict of interest. As
a result, Roger E. Tetrault, Robert L. Howard and Richard E. Woolbert
elected to abstain.
The information set forth under the caption "Fairness of the Offer and the
Merger" in Item 4(b) of the Schedule 14D-9 is hereby amended and restated in its
entirety as follows:
FAIRNESS OF THE OFFER AND THE MERGER
Independent Committee. In reaching its determinations referred to
above, the Independent Committee considered the factors listed below,
which, in the view of the Independent Committee, supported such
determinations. The following discussion of the factors considered by the
Independent Committee is not intended to be exhaustive but summarizes the
material factors considered.
(i) The fact that the per Share price ($35.62) to be paid in
the Offer and the Merger represents (a) a premium of approximately 12.6%
over the closing price of the Shares ($31.63) on the New York Stock
Exchange ("NYSE") on May 4, 1999 (the day prior to the Independent
Committee's recommendation to the Company Board) and an effective premium
of 21.4% over such price per Share if no premium were attributed to the
Company's excess cash, estimated by Simmons at $12.95 per share (Simmons
determined the effective premium by subtracting the excess cash per share
from both the $35.62 Offer Price and from the closing price of the Shares
on May 4, 1999 and calculating the premium of the adjusted Offer Price to
the adjusted price on May 4, 1999), (b) a premium of approximately 19.2%
over the per Share price estimated by Simmons ($29.89) that would have
prevailed on May 4, 1999, recognizing the recent significant recovery in
oil and gas service industry equities but excluding any speculative
activity occasioned by the recent negotiations between Parent and the
Company concerning the possible acquisition of the publicly-held Shares by
Parent and the effective premium (calculated in a similar manner as above)
of 33.8% over such price if no premium were attributed to the Company's
excess cash, and (c) a premium of 58.8% over the 20-day average trading
price of the Shares through March 9, 1999 ($22.43) (the day before the
announcement of the Initial Proposal before oil service stocks began their
general uptrend associated with improved crude prices) and the effective
premium (calculated in a similar manner as above) of 139.1% over such price
if no premium were attributed to the Company's excess cash. The Independent
Committee believed that the historical trading price of the Shares over the
past few months was within a range of the going concern value of the
Company and that the premiums discussed above were attractive in comparison
to premiums received in comparable transactions.
(ii) The fact that the per Share price to be received in the
Offer and the Merger is payable in cash, thereby eliminating any
uncertainties in valuing the consideration.
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(iii) The Company's shareholder profile, the percentage of the
outstanding Shares owned by Parent, the absence of contractual restrictions
on the acquisition of additional Shares by Parent, and Parent's stated
unwillingness to solicit offers to purchase its Shares from a third party,
all of which led the Independent Committee to conclude that exploration of
a business combination with a third party was not practicable.
(iv) The Independent Committee's belief, based upon Company
management and Simmons presentations, that the per Share price to be paid
in the Offer and the Merger was fair in light of the financial condition,
results of operations, business and prospects of the Company as a separate
company.
(v) The knowledge of the members of the Independent Committee
of various risks and uncertainties associated with a decision to continue
to operate the Company as an independent entity, including, but not limited
to, trends in the offshore construction industry and the declining backlog
at the Company, which led the members of the Independent Committee to
believe that there was a substantial risk that the market price for the
Shares could remain at levels experienced in the past few months for a
prolonged period of time or decline from those levels. As a result, the
Independent Committee believed that the Share price to be paid in the Offer
and the Merger was superior to the anticipated Share price if the Company
remained a separate company.
(vi) The arm's-length negotiations between the Independent
Committee and its representatives and the Finance Committee and its
representatives, including that the negotiations resulted in (a) an
increase in the price at which Parent was prepared to acquire the Shares
and a change in the structure of the transaction and the form of
consideration to be received by the Company's shareholders, and (b) the
Independent Committee's belief that $35.62 per Share was the highest price
that could be obtained from Parent under the circumstances.
(vii) The opinion of Simmons, dated May 6, 1999, that, as of the
date of the opinion and based on and subject to certain matters stated in
the opinion, the consideration to be paid in the Offer and the Merger is
fair to holders of the Shares (other than Parent) from a financial point of
view, and the analyses presented to the Independent Committee by Simmons
with respect thereto. See "Opinion of Financial Advisor to the Independent
Committee."
(viii) The fact that the Minimum Condition requires that the
Offer not be consummated unless at least a majority of the outstanding
Shares other than shares beneficially owned by Parent are validly tendered
pursuant to the Offer and not withdrawn.
(ix) The terms and conditions of the Offer, the Merger and the
Merger Agreement, including provisions that no change may be made that,
without the consent of the Company, (a) waives the Minimum Condition, (b)
changes the form of consideration to be paid, (c) decreases the per Share
piece or the number of Shares sought in the Offer or (d) adds conditions.
(x) The fact that the Merger Agreement does not preclude the
Independent Committee from withdrawing or modifying its recommendation to
shareholders if failure to do so would be inconsistent with its fiduciary
duties provides the Independent Committee with a degree of flexibility to
respond to changed circumstances.
(xi) The provision of the Merger Agreement permitting the
Company to negotiate with third parties that make unsolicited Acquisition
Proposals (as defined in the Merger Agreement) if there is a reasonable
likelihood that the directors' fiduciary duties would otherwise be breached
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provides the Independent Committee with a degree of flexibility in the
event that a superior offer is received.
(xii) The possibility that the timing of the transaction is at a
down cycle in the offshore construction and oil service industry and that
shareholders might not be able to participate fully in the recovery (unless
they took the proceeds and reinvested in the industry), which the
Independent Committee viewed as a risk that did not outweigh the benefits
of the Offer and the Merger.
(xiii) The fact that other transaction structures, including a
transaction that would be predominately stock for stock, would be generally
nontaxable, but would expose the Company's shareholders to the market and
other risks inherent in owning Parent Stock, which the Independent
Committee viewed as less preferable than the terms of the Offer and the
Merger.
(xiv) The issues associated with the fact that the Company has
significant excess cash, including the following:
(1) after taking into account the excess cash (for which a
purchaser is unlikely to pay more than dollar for dollar),
the actual premium paid for the underlying business is
substantially higher than the premium on the whole
transaction;
(2) the risks associated with deploying substantial excess
cash in the oil service industry in a period of cyclical
downtrend or diversifying into new lines of business in
which the Company does not have experience; and
(3) the possibility that Purchaser might be deemed to be
paying for the purchase with the Company's own assets.
The Independent Committee believed the issues referred to in clauses (1)
and (2) supported its determination that the Share price to be paid in the
Offer and the Merger was fair, and that viewing the transaction in the
manner referred to in clause (3) was not appropriate.
(xv) The likelihood that the Offer and the Merger will be
consummated in light of the facts that the Offer and the Merger are not
subject to any financing condition, that Parent has represented that the
funds necessary to consummate the Offer and Merger will be available and
the limited nature of the other conditions to the Offer and the Merger.
(xvi) The fact that during calendar year 1998, the Shares had
traded at prices higher than, and certain Share repurchases by the Company
were made at prices higher than, the Share price to be paid in the Offer
and the Merger did not significantly impact the Independent Committee's
determination as to the fairness of the Offer and the Merger, because of
the Independent Committee's belief that conditions in the offshore
construction and oilfield services industry had changed since those dates
to such an extent that those transactions had limited relevance for
determining the current value of the Company and the fairness of the Offer
and the Merger.
Company Board. In reaching its determinations referred to above, the
Company Board considered the following factors: (i) the determinations and
recommendations of the Independent Committee; (ii) the Independent Committee's
analysis of the factors referred to above, which the Company Board adopted; and
(iii) the fact that the price to be paid in the Offer and the Merger and the
terms and conditions of the Merger Agreement were the result of arm's-length
negotiations between the Independent Committee and the Finance Committee.
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The description set forth above of the factors considered by the
Company Board, including members of the Independent Committee, is not
intended to be exhaustive, but summarizes the primary factors considered.
The members of the Company Board, including the members of the Independent
Committee, evaluated the Offer and the Merger in light of their knowledge
of the business, financial condition and prospects of the Company, and
based upon the advice of financial and legal advisors. In light of the
number and variety of factors that the Company Board and the Independent
Committee considered in connection with their evaluation of the Offer and
the Merger, neither the Company Board nor the Independent Committee found
it practicable to assign relative or specific weights to the foregoing
factors, and, accordingly, neither the Company Board nor the Independent
Committee did so. Individual members of the Company Board and the
Independent Committee may have given differing weights to different factors
and may have viewed certain factors more positively or negatively than
others. Neither the Company Board nor the Independent Committee considered
the net book value or liquidation value of the Company in connection with
their determinations referred to above because of their belief that these
measures of value are not relevant for purposes of valuing a company
actively engaged in the offshore construction and oilfield service industry
due to (1) in the case of net book value, the significant asset writedowns
incurred by many of such companies and (2) in the case of liquidation
value, the relatively low valuation that would result as compared to other
methods of valuation due to the nature of the Company's business and
assets.
The Company Board, including the members of the Independent Committee,
believes that the Offer and the Merger are procedurally fair because, among
other things: (i) the Independent Committee consisted entirely of directors
who were neither employees or officers of the Company nor employees,
officers or directors of Parent and were appointed to represent the
interests of the minority shareholders of the Company; (ii) the Independent
Committee retained and was advised by independent legal counsel; (iii) the
Independent Committee retained Simmons as its independent financial advisor
to assist it in evaluating a potential transaction with Parent and received
advice from Simmons; (iv) the Minimum Condition which may not be waived by
Purchaser without the consent of the Company and which has the effect of
requiring that in order for the Offer to be successful, a majority of the
publicly-held Shares must be tendered and not withdrawn; (v) the
Independent Committee engaged in extensive deliberations in evaluating the
Offer and the Merger and alternatives thereto; and (vi) the fact that the
$35.62 per Share price and the other terms and conditions of the Merger
Agreement resulted from active arm's-length bargaining between the
Independent Committee and its representatives, on the one hand, and the
Finance Committee and its representatives, on the other hand.
The Company's executive officers have not been asked to make a
recommendation as to the Offer or the Merger.
The information set forth in the second paragraph under the subcaption
"Premium Analyses" under the caption "Opinion of Financial Advisor to the
Independent Committee" in Item 4(b) of the Schedule 14D-9 is hereby amended and
restated to read in its entirety as follows:
In addition, Simmons compared the Offer Price to the May 6 Closing
Price, the Estimated May 6 Price and the Pre-announcement Price, in each
case as adjusted to eliminate any premium on the Company's excess cash.
Simmons made this adjustment as a result of its determination that any
purchaser would be unwilling to pay a premium for the Company's excess cash
and that, as a result, any premium should be solely attributable to the
Company's operating business. It was Simmons' judgment that the Company's
cash and cash equivalents and investments in debt securities exceeded the
Company's cash needs at May 6 by an amount equal to $12.95 per Share.
Simmons calculated this amount by subtracting an amount equal to 5% of the
Company's fiscal 1999 revenues (which in Simmons' judgment is an amount
that approximates cash typically needed for operations by companies engaged
in the offshore construction and oilfield services industry) from the
Company's cash and cash equivalents and dividing that amount by the
outstanding Shares. In order to gauge the premium implied by the Offer
Price over the May 6 Closing Price as adjusted to eliminate any premium on
excess cash, Simmons subtracted the per share amount of the excess cash
($12.95) from each of
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the May 6 Closing Price (to yield an adjusted price per Share of $17.55)
and the Offer Price (to yield $22.67 per Share) and compared the adjusted
Offer Price to the adjusted May 6 Closing Price. This calculation resulted
in a 29.2% premium. In like fashion, Simmons adjusted both the Estimated
May 6 Price and the Pre-announcement Price to exclude the excess cash and
determined that the premium so implied with respect to the adjusted
Estimated May 6 Price was 38.0% and the premium so implied with respect to
the adjusted Pre-announcement Price was 139.1%.
The information set forth in the first paragraph under the subcaption
"Other Factors and Analyses" under the caption "Opinion of Financial Advisor to
the Independent Committee" in Item 4(b) of the Schedule 14D-9 is hereby amended
and restated to read in its entirety as follows:
In the course of preparing its Opinion, Simmons performed other
analyses and reviewed other matters, including the trading characteristics
of the Shares and the shares of comparable companies and the history and
outlook for energy markets, the oilfield services industry and the
Company's markets. Simmons observed that the Company's stock performance
(1) reflected the general decline in other oilfield services company stocks
from late 1997 through early 1999, driven by declining energy prices and
activity levels in the oilfield services industry, and (2) more recently
reflected the recovery in the market for oilfield services company stocks,
driven by a recovery in energy prices and an improving outlook for
oilfield services companies. Simmons also reviewed the assumptions
underlying projections for the Company and for comparable companies and
observed that such assumptions were generally consistent with its analysis
of historical and current conditions in the oilfield services industry.
Simmons then considered the potential for further recovery in the oilfield
services industry, observing that the Company's public shareholders could,
if they wish, retain their exposure to any future recovery in the oilfield
services industry by reinvesting the proceeds of the transaction
contemplated by the Merger Agreement in oilfield services company
securities. Simmons also reviewed the ownership interests of the Company's
principal shareholders (other than Parent) and the possible effects of
Parent's significant ownership interests, and noted that, because of
Parent's controlling ownership interest in the Company, any alternative
transaction to the Offer and the Merger would be dependent on Parent's
concurrence in the Company's decision to pursue an alternative transaction.
Simmons reviewed the Company's contingent liabilities and observed that the
transaction contemplated by the Merger Agreement would eliminate any future
impact of those liabilities on the holders of the publicly held Shares. In
addition, Simmons analyzed the pro forma effects of the Offer and the
Merger on Parent (after giving effect to potential cost savings following
the transaction) and concluded that the transaction is significantly
dilutive to Parent's projected earnings per share, making it unlikely that
Parent would complete the transaction at a higher price than the per Share
price to be paid in the Offer and the Merger.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this amendment is true, complete and
correct.
June 8, 1999
J. RAY MCDERMOTT, S.A.
By: /s/ S. W. Murphy
-------------------------------
S. W. Murphy
Senior Vice President, General
Counsel and Corporate Secretary
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