Saipem : Saipem to be the main winner from the merger with Subsea7, if competition authorities allow it.

Saipem announced earlier this week that it is planning on merging with Subsea7. The news, albeit surprising, is positive in our view as it will create a bigger and global player in the offshore space, representing around 83% of the combined group’s EBITDA. Also, it will have a positive impact on Saipem’s margins, as Subsea7 has stronger margins of around 16% (vs around 9% for Saipem). While not stated at the moment, a spin-off of the onshore segment post-transaction is not to be excluded given the little rationale in our view with the significant offshore size, on top of being more competitive and less margin accretive. The main uncertainty remains the antitrust approvals given the oligopolistic nature of the offshore E&C market.