Shares of Helix Energy Solutions Group (NYSE: HLX) jumped more than 11% by 2:30 p.m. EDT on Monday. Fueling the rise was a report in The Wall Street Journal, which said that the offshore service company had hired bankers and was "exploring strategic alternatives."
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According to the report, Helix Energy Solutions is working with bankers on a potential sale. It has just started the process, which might not result in a transaction. One of the things that the Journal article noted was that consolidation in the industry is heating up because companies have identified the need for increased scale given the persistent weakness in oil prices. That's especially true in the offshore drilling sector, which has been hit even harder during the downturn because of the rise in drilling cheaper onshore shale wells. That's why several contract drillers have announced consolidation transactions this year, each focused on capturing expense synergies.
Leading offshore driller Transocean (NYSE: RIG), for example, announced in August that it would buy rival Songa Offshore in a $1.2 billion deal. While Transocean noted that Songa brought a $4.1 billion contract backlog with it, which would increase the combined company's earnings and cash flow, another major draw was the anticipation that Transocean could capture $40 million in annual cost and operations synergies. Such synergies would likely be what a would-be buyer of Helix would hope to gain from a transaction.
Helix Energy Solutions has taken investors on a wild ride this year. Shares plunged 10% last week after oil took a breather but are rebounding this week on the reported decision to seek a buyer. Even with that rebound, the stock is still down 15% this year and 66% over the past three. While this suggests the stock could have more upside if Helix does indeed find a buyer, that's no sure thing. Thus, investors need to be careful before diving in and trying to chase this stock, as because it could be quite volatile and quickly give back today's gains if no buyer emerges.
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