Acquisition would be biggest takeover of a European firm China Oilfield Services Ltd (COSL), the mainland's dominant offshore oil drilling firm, yesterday offered to buy all of Norwegian rival Awilco Offshore for US$2.5 billion. If completed, the deal will be the largest takeover of a European company by a mainland firm. Including US$1.3 billion in debt owed by Awilco that COSL will assume, the acquisition value totals US$3.8 billion. The acquisition will be a major step forward for COSL in its goal of growing bigger by expanding overseas. COSL is the Hong Kong and Shanghai-listed services arm of state-owned China National Offshore Oil Corp, the mainland's dominant offshore oil producer. COSL has offered 85 kroner (HK$130.75) for each Awilco share, an 18.7 per cent premium to Friday's closing price of 71.6 kroner, and 42.4 per cent higher than the May 29 closing price just prior to Awilco confirming it was an acquisition target. Chief financial officer Zhong Hua said the price was fair despite the premium, since Awilco was a high-growth company that could help COSL reach its growth target faster. 'To Awilco's majority shareholder, who engaged in rig investment early and got in at low prices, they have realised sufficient profit at the agreed price,' he said. 'To COSL, we need to do acquisitions to realise our growth targets ... Even if we wanted to build the same rigs ourselves, we couldn't do it at the acquisition price.' Awilco's ultimate 40.1 per cent controlling shareholder is Anders Wilhelmsen, a co-founder of Royal Caribbean Cruise Lines, who owns interests in tankers and property. Rig prices have soared as high oil prices increased drilling demand. Higher raw material and labour costs also played their part. Awilco said in May that it expected to operate 13 drilling rigs by 2010, up from six currently. COSL said that after the acquisition it expected to operate 34 rigs by 2011, up from 15 currently. Awilco's price-to-earnings ratio is expected to fall from 17.54 this year to 12.03 next year and 8.11 in 2010, according to analysts polled by Bloomberg. This compares with COSL's H share PE ratio of 17.45 this year, 15.18 next year and 12.98 in 2010. Analysts said the deal's price was fair. BOCI analyst Lawrence Lau said Awilco's faster profit growth justified the premium. 'Although the deal carries obvious cyclical risks, we believe Awilco's high-quality assets and diversified footprint, together with the cross-selling opportunities for COSL's integrated field service model, can justify the premium bid,' said CLSA China energy analyst Gordon Kwan. While Awilco is a pure drilling services provider, COSL also offers seismic data collection, transportation and well services that drillers need. COSL would pay US$200 million cash and finance the rest of the deal by bank borrowings, Mr Zhong said. Lehman Brothers, JP Morgan and China International Capital Corp are financial advisers to COSL in the offer. COSL shares were suspended from trading yesterday. Awilco shares traded at 82.1 kroner at 7:25pm last night. World view China Oilfield Services operates 15 drilling rigs, 12 jack-ups and 3 semi-submersibles The company runs an offshore fleet that includes 75 support vessels, 4 oil tankers, 5 chemical tankers, 8 seismic vessels, and 4 geotech survey vessels. Awilco Offshore has 5 jack-up drilling rigs and 2 accommodation units in operation. It also has 3 jack-up drilling rigs under construction in Singapore and 3 semi-submersible drilling rigs under construction at the Yantai Raffles shipyard in Shandong province. In addition, the company has two remaining options for the construction of semi-submersible drilling rigs.