Baker Hughes and Akastor entered an agreement to create a joint venture company that will bring together Baker Hughes’ subsea drilling systems (SDS) business with Akastor’s wholly-owned subsidiary, MHWirth. The joint venture will deliver an offshore drilling equipment offering that will provide customers with a portfolio of products and services.

The transaction will create an equipment provider of which Baker Hughes and Akastor will each own 50%. Following the closing of the transaction, the joint venture’s operations will be managed from current offices in Houston and Kristiansand, Norway. Merrill A. “Pete” Miller will serve as chairman and CEO of the joint venture company. Miller has been in the oil and gas industry for more than 40 years, holding various leadership roles, including chairman, president and CEO of National Oilwell Varco.

“I would like to express sincere gratitude to the good work and dedication shown by the respective teams of Baker Hughes and Akastor for making this happen despite the current challenges caused by the global COVID-19 pandemic,” Karl Erik Kjelstad, CEO of Akastor, said. “I strongly believe that this company will give a solid basis for both organizations to meet the current challenges in today’s market and to continue as a leader in developing advanced and efficient drilling solutions that support the industry’s transition towards more sustainable operations.”

“This transaction is a major step for MHWirth and the transformation strategy announced in February 2019,” Kristian M. Røkke, chairman of Akastor, said. “The company will offer customers a strengthened product offering and investors attractive value creation. This transaction will also allow Akastor to maximize and ultimately realize value to its shareholders.”

“The oil and gas industry is rapidly evolving, and we are constantly looking at new and innovative ways of delivering value to our customers,” Neil Saunders, executive vice president of oilfield equipment at Baker Hughes, said. “This company is the perfect fit between our respective portfolios and further transforms our core operations for long-term success, bringing complementary solutions to market and offering our customers a full offshore drilling equipment package.”

MHWirth is a global provider of drilling solutions and services covering five continents with offices in 13 countries.

Baker Hughes’ SDS business is a division of the oilfield equipment segment of Baker Hughes and is headquartered in Houston. SDS provides integrated drilling products and services worldwide, with service and manufacturing facilities in 11 countries and a portfolio of blowout preventor (BOP) systems, controls and riser equipment.

The closing of the transaction is subject to customary conditions, including regulatory approvals, and is expected to occur in the second half of 2021. Morgan Stanley, Paul Weiss, Thommessen and EY are acting as advisors for Baker Hughes. Goldman Sachs, BAHR, Sidley Austin and EY are acting as advisors for Akastor.

As mentioned previously, Baker Hughes and Akastor each will own 50% of the joint venture company. Akastor will contribute its shares in MHWirth to the joint venture company in return for 50% of the shares and $120 million in consideration, of which $100 million is payable in cash at closing. Baker Hughes will contribute the SDS business to the joint venture company in return for the other 50% of the shares and $200 million in consideration, of which $120 million is payable in cash at closing. The joint venture company will issue notes to Baker Hughes and Akastor representing the balance of the consideration owed to them. The notes will be subordinated to the joint venture company’s external debt financing.

The joint venture company will finance the cash consideration payable to Baker Hughes and Akastor by way of a $220 million bank facility. In addition, the joint venture company also will be financed by an $80 million working capital facility.

The transaction will require the refinancing of Akastor’s existing corporate credit facility. Akastor has received commitments for a NOK 1.25 billion (roughly $146 million) revolving credit facility that will be entered into prior to closing of the transaction.

Following completion of the transaction, it is expected that MHWirth no longer shall be accounted for as a consolidated subsidiary of Akastor. Instead, it is expected that Akastor shall treat the joint venture company as a joint venture for accounting purposes and that Akastor will recognize 50% of the equity and 50% of the net profits of the joint venture company in its accounts based on the “equity method.”

Following completion of the transaction, it is expected that Baker Hughes’ SDS business will no longer be accounted for under Baker Hughes’ oilfield equipment segment. Instead, it is expected that Baker Hughes will treat the joint venture company as a joint venture for accounting purposes and that it will recognize 50% of the equity and 50% of the net profits of the joint venture company in its accounts based on the “equity method.”