Capital Markets / Investor Relations in Two Minutes or Less
Consequences of Taking a Quarter Off Part 2 – Transocean $RIG
A lot can go wrong for a management team if and when they take a given quarter off.
Let us consider the $100M Data Center CEO.
There once was a well-established data center, which had no available inventory to lease, but its best customer came calling for space and power.
The contract was unfortunately turned down.
A smaller, unstable, teetering on bankruptcy data center took the business, saved the company, and the CEO made $100M!!!
As a public company executive, are you in the business of unlocking shareholder value for your investors or the competition?
Current Example: Transocean $RIG
Transocean represents a current example of the quarter off phenomenon and unlocking value for competitors.
There are two key golden metrics to consider in this situation
The inherent or natural golden metric of backlog, and the manufactured golden metric of de-leveraging the balance sheet.
Transocean’s 4Q23 Results
The company had a solid 2023, but everything fell apart in 4Q23.
In terms of Backlog, $RIG only added $0.3B, whereas Valaris ($VAL) its main competitor added $1.4B to backlog.
Furthermore, $RIG still has near $7B in debt, and no cold stacked assets have been reactivated to date.
What Is the Crux of the Problem for RIG Shareholders? Bankruptcy
$VAL declared bankruptcy in 2020 and emerged in 2021. The process eliminated $7.1B in debt, allowing $VAL to take low ball pricing and actually be profitable.
Conversely, $RIG never declared bankruptcy and still holds $7B in debt, and has 8 cold-stacked assets out of 17 across the industry.
$RIG management prefers to wait to activate cold stacked assets for surge pricing and intends to wait until 2026 to deleverage.
The disconnect in $RIG strategy creates a waiting for Godot moment for investors.
The equity trades as if de-leveraging is a pipe dream given 2026 is an eternity away.
The bonds trade as if de-leveraging is a slam dunk.
At some point, taking an attractive rate on the cold stacked assets to start de-leveraging sooner has greater value than waiting to activate the same assets at surge pricing rates.
Key Learning for Executives
In competitive industries management teams cannot operate the business in a vacuum.
Competitor strategy and actions must inform how you operate the business.
A HOF management team at $RIG would recognize that the home run way to unlock shareholder value revolves around activating, one or more of the cold stacked assets, at an attractive, maybe not peak, price, and start de-leveraging ASAP!!!
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