Tidewater Inc. and GulfMark Offshore Inc. agreed to merge on Monday in an all-stock transaction that will create the world's largest global offshore service vessel operator. The combined company is valued at approximately $1.25 billion (based on Tidewater's closing price of $30.62 a share on July 13, 2018.)

Under the terms of the all-stock agreement, GulfMark stockholders will receive 1.1 shares of Tidewater common stock for each share of GulfMark common stock held by them. Each GulfMark noteholder warrant will be automatically converted into the right to receive 1.1 Tidewater shares, subject to Jones Act restrictions on maximum ownership of shares by non-U.S. citizens. Collectively, these GulfMark security holders will own 27% ownership of the combined company after completion of the combination, or 26% on a fully-diluted basis. Total value to these GulfMark security holders is approximately $340 million and the equity market capitalization of the combined company is approximately $1.25 billion.

Concurrent with the closing, $100 million of existing GulfMark debt is expected to be repaid. On a pro-forma basis, Tidewater will have a projected net debt of approximately $100 million and pro forma available liquidity of more than $300 million. Tidewater will assume GulfMark's obligations under its existing equity warrants ($100 strike price).

The combined company will have the industry's largest fleet and the broadest global operating footprint in the OSV sector. The financial strength and operating footprint of the combined company will also position it to sustain through-cycle market leadership, Tidewater said.

The transaction is expected to be accretive to Tidewater's 2019 EBITDA and produce transaction-related cost synergies of approximately $30 million, which are expected to be realized no later than the fourth quarter 2019, and additional efficiencies associated with greater scale and scope of operations. The combined company also expects to realize revenue synergies through improved vessel utilization, with future pricing improvements largely driven by the timing and trajectory of a recovery in demand, and the availability of competitive vessels. The larger cash flows and greater diversification of the combined company may also provide access to capital with more attractive terms.

The combined company will be operated under the Tidewater brand and will be led by its CEO, John Rynd. Upon closing of the merger, Tidewater's board will be expanded to 10 seats by adding three directors selected by GulfMark. The transaction is expected to close in the fourth quarter of 2018, subject to customary closing conditions, including stockholder approval of the merger (by GulfMark's stockholders) and of the share issuance (by Tidewater's stockholders).

"By combining our fleets and shore-based activities we will be better able to provide customers with access to modern, high-specification vessels while maintaining a strong commitment to safe operations and superior, cost-effective customer service," Rynd said in a statement. "The transaction preserves Tidewater's strong financial profile and allows the company to fund both organic growth and possible additional acquisitions.

"Our companies share similar values in regards to safety, compliance and customer service, and we expect the integration process to be smooth," Rynd continued. "We look forward to joining forces with the talented GulfMark team and building on our long history of supporting customers wherever they may need us, providing our employees with a safe and reliable place to work and delivering solid returns for our stockholders."

"At GulfMark, we have been longstanding advocates for consolidation of the OSV industry," Quintin Kneen, GulfMark's president and CEO said. "This transaction is an important first step in that process. The combined company will be better positioned to build upon GulfMark's strong track record in the recovering North Sea region. The combined company's global operating footprint also provides scope for significant scale-based economies and improved utilization of our fleet by redeploying under-utilized vessels across the combined company's broader operating footprint."

According to Tidewater's presentation Monday, the combined company will have 245 vessels, making it the largest global OSV operator. The combined company as 173 total active vessels with average vessel age of 9.2 years as of June 30, 2018.

UK-based Vessel Value’s head of offshore, Charlie Hockless, said he was "quite surprised" about the merger since both companies had effectively tackled the downturn by successfully restructuring.

"Survival seemed to be a formality for Tidewater and Gulfmark," he said. "Now that the merger is complete, I can certainly see the advantages. The new Tidewater will be the largest OSV owner on the planet by sheer number of OSVs owned. However the new combined fleet closes the gap between Tidewater and Edison Chouest Offshore, which remains in the pole position by fleet value. If this downturn has taught us anything, big companies survive. The new Tidewater will be a dominant player for years to come."

The total value of Edison Chouest's fleet is $1.92 billion, according to Vessels Value. The company gives the combined Tidewater-GulfMark fleet a total value of $1.4 billion.

David Krapf has been editor of WorkBoat, the nation’s leading trade magazine for the inland and coastal waterways industry, since 1999. He is responsible for overseeing the editorial direction of the publication. Krapf has been in the publishing industry since 1987, beginning as a reporter and editor with daily and weekly newspapers in the Houston area. He also was the editor of a transportation industry daily in New Orleans before joining WorkBoat as a contributing editor in 1992. He has been covering the transportation industry since 1989, and has a degree in business administration from the State University of New York at Oswego, and also studied journalism at the University of Houston.