Why Valaris Limited Stock Took it on the Chin Today
Key Points
It's gearing up to merge with a peer.
This means a delay in reporting earnings and a cancellation of a planned conference call.
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What a difference one week is making in the life of offshore contract drilling services specialist Valaris Limited (NYSE: VAL). A mere eight days after announcing it was being acquired for a premium, the company's share price fell by more than 7% on Tuesday. Investors were disquieted by the delay in their company's latest earnings release, and were likely concerned about the acquirer's share price slide during that trading session.
Post-acquisition adjustments
Before market open that morning, Valaris announced the delay. It said it has rescheduled its release of fourth-quarter results to this Thursday, Feb. 19. The company also cancelled its planned conference call to discuss the period.
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While neither move is unusual for a business in the process of being acquired, investors like to have as much information as possible about the companies they invest in. It's not unusual in a "merger of equals" -- as the all-stock, $5.8 billion deal with energy sector peer Transocean can easily be considered -- the resulting, unified company soon stops breaking out the results of its newly absorbed asset.
The two companies announced the deal last Monday. They said that their combination would be owned approximately 53% by current Transocean shareholders, with the remainder held by Valaris investors.
Where Transocean goes...
Additionally, since this is an all-stock deal, its value hinges on the price of Transocean. On Monday, largely due to concerns about oil price weakness in the coming months, investors traded out of that company's stock, leaving it with a 6% decline.
I believe that the Valaris story is over, and there's little point in trying to profit from the shares now. The combined Transocean/Valaris will be a powerhouse in the offshore segment, but I'd hold off on investing until we get a better sense of how the merger is being implemented.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Transocean. The Motley Fool has a disclosure policy.
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