Subsea 7 S.A. (SUBC) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the joint conference call for Saipem and Subsea 7. [Operator Instructions] Please be advised today's conference is being recorded. Yesterday, Saipem and Subsea 7 announced that they have signed a memorandum of understanding for a full combination of their respective businesses with support from their Board of Directors as well as their reference shareholders. Please read thoroughly the disclaimer on Page 2. Presenting today are Ms. Elisabetta Serafin, Chairman of the Board of Directors of Saipem; Mr. Kristian Siem, Chairman of Board of Directors of Subsea 7; Mr. Alessandro Puliti, Chief Executive Officer of Saipem; and Mr. John Evans, Chief Executive Officer of Subsea 7. I would now like to hand the conference over to your first speaker, Mr. Siem. Go ahead, sir.

Thank you, and good morning, everyone. I am pleased that we have announced an agreement in principle between Saipem and Subsea 7 to merge the 2 companies for the following main reasons. The combination will give us a scale that is more in harmony with the magnitude of the projects in offshore energy today and in the future for oil and gas and renewable industries. We have successfully worked together on projects over many years, and our 2 organizations are highly compatible. The transaction offers a great opportunity for long-term planning with our clients, suppliers and subcontractors and to further improve our operational efficiency. We expect improved cash flow, including from cost synergies to underpin attractive shareholder returns. The merged company will have a strong balance sheet and achieve an investment-grade credit rating. The transaction has been agreed by both Boards and the 3 main shareholders. This transaction marks a major milestone in the history of Subsea 7. We merged with Halliburton in 2002, with Acergy in 2011 and now with Saipem. And we are building the company and shareholder value with a long-term outlook. We are confident in the outlook for our industry, and this combination makes us well prepared. With that, I hand over to you, Elisabetta.

Thank you, Kristian, and good morning to all of you. I am pleased to be here today too and I'm very proud of the proposed transaction, which will create a leader in energy services, headquartered in Italy with European routes and with a global footprint. The 2 largest shareholders of Saipem, Eni and CDP Equity fully support the proposed transaction. I'm confident that Saipem's culture of excellence in engineering and execution will blend seamlessly with Subsea 7 to create value for all stakeholders. And now I hand over to Sandro, Congratulations.

Thank you, Elisabetta, and good morning to all. Turning to Slide 4. Saipem and Subsea 7 are both leading industry players and are highly complementary in terms of fleet capabilities, geographical presence and customers. The proposed combination of our 2 companies would therefore create a global leader in energy services with comprehensive solutions to clients through integration across the value chain. The combined company would have a global workforce of more than 45,000 people, more than 60 countries and expanded and diversified fleet of more than 60 construction vessels with the ability to undertake a wide range of projects from shallow water to ultra-deep water. Saipem and Subsea 7 combined expertise would allow the development of cutting-edge solutions for complex projects through a strong focus on innovation and technology. The combined entity will be named Saipem 7. Turning to Slide 5. The transaction has a strong and compelling logic for both Saipem and Subsea 7 with the potential to unlock material synergies and the combined company would have a complementary set of capabilities, strong positioned to navigate future market environment. The envisage transaction would be a cross-border combination with Subsea 7 shareholders receiving 6.688 Saipem shares for each Subsea 7 share representing a pro forma ownership of 50-50 of the combined company. Subsea 7 would distribute to its shareholders an extraordinary dividend of EUR 450 million, immediately prior to completion of the transaction. Both companies' largest shareholders have expressed their strong support for the transaction, and it is expected that Saipem and Subsea 7 would enter into a binding merger agreement around mid-2025. Completion is currently anticipated to occur in the second half of 2026. We will cover in more detailed aspects of governance and shareholder remuneration in the next slide. Turning to Slide 6. Siem Industries, the largest shareholder of Subsea 7 as well as Eni and CDP Equity, the largest shareholders of Saipem have given their support to the successful completion of the merger. The combined company would be run as 4 businesses with the combined offshore engineering and construction activity structure as a stand-alone legal entity fully owned by Saipem 7. The combined company will be listed on both the Milan and Oslo stock exchanges and headquartered in Milan, Italy. The offshore E&C business will be a separate legal entity to be headquartered in London, U.K. Saipem 7's Board of Directors would have 9 members out of which 3 will be independently nominated by minority shareholders. The by-laws of the combined company are expected to provide for loyalty shares. Turning to Slide 7. Saipem and Subsea 7 are both major players in the offshore E&C and have complementary geographical footprint and business mixes. The proposed combination would be a beneficial both Subsea 7 and Saipem's clients, bringing together the respective strengths and creating a global leader in energy services. This will be achieved through improved Subsea integration and product offering, including an increased ability to optimize project schedules for our clients. World-class expertise and experience, and expanded global region scale and a stronger ability to foster innovation in Subsea technologies. Turning to Slide 8. Saipem's portfolio is balanced between serve and conversional activities and Subsea 7 portfolios is more focused on SURF's projects. Subsea 7 has a stronger position in offshore wind. In contrast, Saipem has more diversification between offshore drilling, floaters, onshore engineering and construction and sustainable infrastructure. The combined company who strengthened its positioning across all the products by leveraging the highly complementary nature of Saipem and Subsea 7's fleet with a full suite of technology for current and future needs of the SURF conventional and offshore wind industries. I will now hand over to John to run through Slide 9 onwards.

Thank you, Sandro. And turning to Slide 9. There is limited overlap between Saipem and Subsea 7 in terms of the key offshore Engineering & Construction customers and geographical focus. The combined company would benefit from an enlarged customer base and a stronger global presence and clients will benefit from an enhanced service offering, improved project execution capabilities, a strengthened capital framework and investments in new technologies. Turning to Slide 10. The combination would create a global leader in offshore energy services with EUR 20 billion of revenue, EUR 2 billion of EBITDA and a combined offshore construction backlog of EUR 43 billion. It will also have a proprietary fleet of more than 60 construction vessels and a global organization of over 45,000 people. Pro forma leverage will remain relatively low at 0.6x net debt to EBITDA, and it is envisaged that the combined company would achieve investment-grade credit ratings. Turning to Slide 11. Here, we show the combined revenue, EBITDA and backlog breakdown. The offshore Engineering & Construction will represent the largest contributor to the combined company. In line with Saipem's current strategy, the onshore E&C division will be run with a focus on reducing overall risk and exposure and maximizing project profitability. The Offshore Drilling division would continue to maximize EBITDA and cash flow. Turning to Slide 12. The combination is expected to unlock some EUR 300 million of annual cost and CapEx synergies on a run rate basis. The potential synergies are derived mainly from fleet optimization, procurement, sales and marketing and process efficiencies. The total onetime cost of achieving the synergies is estimated at approximately EUR 270 million. The combination is also expected to have further synergistic effects due to robust financial profile with enhanced revenue visibility and cash flow generation and improved business risk profile and in a large scale. Turning to Slide 13. Combination of Saipem and Subsea 7 would create significant value for all stakeholders. Clients would benefit from more integrated solutions, a global presence and an enhanced service offering. Employees will benefit from more professional growth opportunities from a larger global group. The transaction would also maximize value for our investors with synergies, optimized allocation of capital across a broader complementary vessel fleet, access to a wider investor base and sources of capital, a solid balance sheet that's expected to support an investment-grade credit rating and an attractive shareholder remuneration policy. Post completion, Saipem 7 is expected to distribute to shareholders at least 40% of its free cash flow after the repayment of lease liabilities. And finally, to Slide 14. If the proposed transaction proceeds, it is expected that Saipem and Subsea 7 enter into a binding merger agreement around mid-2025. Completion of the transaction will be subject to inter alia to the receipt of Saipem and Subsea 7 shareholder approvals, obtaining the required government approvals and customary regulatory clearances. And the completion of the steps required for listing of the combined company shares on both the Milan and the Oslo stock exchanges. Completion is currently anticipated to occur in the second half of 2026. Thank you for your attention. Sandro and I, together with Paolo and Mark, our respective CFOs, will now be happy to take questions over the phone line.

[Operator Instructions] And the first question comes from the line of Mick Pickup from Barclays.

Congratulations. If I can be a bit cynical if I may. Obviously, M&A in this space often has been a bit restricted by not knowing exactly what's in the opposition backlog. So can you just talk about the due diligence you've both done already? Obviously, some notable concerns around Saipem's backlog at the moment of some of its current execution. So what has been done on that? And the second question, if I may, this is for John. John, known you for years and your offshore through and through. So what is it in Saipem's fleet that makes you excited at the moment? And why exactly do you think there's assets in there which you would need or would like to get hold of?

Well, thank you, Mick. I'll take this question and on the due diligence and the benefit of putting these 2 companies together. So we've done an element of due diligence. I think it's fair to say in the offshore Engineering & Construction sector. We are very familiar with each of portfolios. We understand those businesses well on both sides and a number of occasions we have bid against each other on those projects. So again, I think both companies feel relatively clear on what's in the portfolios and how those projects will move ahead. So that task has been done during the due diligence. In terms of the other aspects of the businesses, Sandro and the team have shared with the Subsea 7 team details of the different businesses and we have looked at those and taken some external advice to assist the state in understanding the benefits of those businesses going forward. I think to answer your more broader question you're asking us here, Mick. I think the benefits of bringing together these 2 companies are the very complementary nature of the work that we do in offshore Engineering & Construction. Our fleets are very compatible. Subsea 7 is primarily a real-based pipeline company. Saipem is primarily a real-based pipeline company, Saipem is primarily a J-Lay and S-Lay's fleets, so very complementary. Saipem have trunk lines, and we've seen on carbon capture projects, the merits of linking SURF and trunk line capability and also the geographic fit that both Sandro and I covered earlier shows that, again, fitting these 2 companies together will allow our clients to have one global service provider that can provide everything from ultra-shallow water in the Middle East to ultra-deepwater in some of the newer provinces there. So hopefully, that should answer your question.

We will now take our next question and the next question comes from the line of Haakon Amundsen from ABG Sundal Collier.

Congratulations, guys. If I can have 2 quick ones. First of all, obviously, a large portion of the portfolio is the offshore E&C business. I was wondering what we should think about in the longer term, the strategy of having these other segments where the combined company will have a less kind of key position like offshore drilling, onshore E&C. So would they be spun out? Or are they key for the company going forward? So that's my first. And the second one is when you look kind of post the current, you could say, legacy backlog from Saipem where there has been some risk. Is there any structural differences in the margin potential between Subsea 7 and Saipem there, please?

Thank you, Haakon. I'd suggest that Sandro takes these 2 questions.

Okay. Thank you, John. Thank you for the question. So clearly, Saipem 7, we remain focused on the offshore drilling since it is a kind of business that is giving great satisfaction to ourselves in terms of margins and in terms of EBITDA. Regarding the onshore engineering activity the company will remain focused on the new strategy that Saipem set up on the onshore. So very careful acquisition reducing very much the risking of that activity, limiting the activity where we feel we can really have a competitive advantage and can be strategic for us. So I'm speaking about the sector of -- linked to the energy transition, mainly. So means the ammonia, urea and the fertilizer segment where we can leverage also on patents, especially on the urea, there is a great request of the kind of plans now. So that's for sure. This will be -- will remain specialties that the onshore will continue to seek in this portfolio, having always in mind a derisked contractual base for this future activity. In the meantime, we will remain concentrated in delivering the backlog on the offshore not forgetting that another area where we see good possibility remains also LNG and all the carbon capture value chain. Saipem is already the only contractor that can serve the entire value chain of the carbon capture and storage from capturing the [indiscernible] of the clients, transporting CO2 on land and sea. And as John said, we are now serving several clients for trunk lines for CO2 transportation and sea. And then we can drill the well to inject CO2 for geological storage combining with Subsea 7, we will be even stronger also in this segment. There was another part of the question, then now I -- there is a margin yes, there is a margin difference between Subsea 7 and Saipem. This is very clear explain because Subsea 7 is working mainly on the SURF, while Saipem is also very much exposed also to the conventional offshore activity speaking about jacket, decks, platforms and shallow water activities where margins are traditionally slightly lower than the very deep water activity like the SURF. Nevertheless, they are very good margins in any case.

And the next question comes from Mark Wilson from Jefferies.

Can I ask how long these discussions have been in play perhaps? And if there was any broader energy strategy that underpins this also, for example, where market strategies are in Europe versus the U.S.A.? And then indeed, is there defensive logic here versus a competition you're seeing in the market?

I'll answer this one. The conversations have taken place over the last months. As we mentioned earlier in the prepared remarks, we've worked together successfully in projects like Sakarya, Phase 1 and Phase 2 in Turkey and the SURF and conventional business frontline business as well as Seagreen in the offshore wind. So Sandro and myself and our teams have worked together over a number of years. And it's been a very good working relationship between us, we understand the complementary strengths that we bring. The other thing I think that's been important is both companies have recognized that there is an energy transition taking place and have endeavored to position themselves in these new markets and that hasn't been without its challenges for both of us as we've been through that process. But again, we're now seeing clarity as to how those markets are working for us and how we can make good returns for our shareholders in it. For us, it was about the ability to bring 2 very complementary capabilities together and offer that to our clients. That was the main driver of what we were trying to do here, was we could understand the fit between the 2 companies and the industrial logic of what we were putting together has stood out for quite some time for both of us. So that's the background, and that's the reason we're here today. I'm very proud to announce the combination of the 2 businesses.

And if I could add 1 follow-up. One of your slides show obviously, the Subsea Integration Alliance. Could we ask if there are any exclusivity or restrictions on the company working with SIA or indeed other competitors post completion?

Well, I think we'd expect to see the benefits of the proposed transactions being discussed with our partner, OneSubsea, but there is no real overlap between Saipem and OneSubsea. So we don't really see an issue there. And again, I think we would see that the enlarged business would be a good attractive partner for the SIA and that would offer an enlarged scale and capability within both trunk line and SURF and carbon capture. So again, I think that those conversations will take place over the coming months.

The next question comes from the line of Martin Huseby Karlsen from DNB Markets.

So expanding on the previous questions, this is for you, John. I'm keen to hear the Subsea 7 perspective and strategic rationale for trading our SURF position into a more diversified conglomerate rather than maintaining the pure-play exposure that you have today?

Well, I think as we covered in the main material that we've got here, it's the complementary nature of the fleet, the scaling up that we can become through the size we need to be. The contracts are getting larger, more complex and for us, it's about how do we maximize the returns for our shareholders. We've spoken many times on our quarterly earnings call about larger fleets, larger capability, larger ability to service our clients is the key to making good margins in this business. And again, bringing this large 60 asset-based fleets together will be very, very good for the clients and for our shareholders. I think it's very important also to remember that the scaling of the offshore Engineering & Construction business here, it's 69% of the revenue of the combined company and around 83% of the EBITDA of the combined company as we showed a couple of minutes ago, in one of the prepared slides. So this new company is very, very much an offshore Engineering & Construction company. fully dedicated to servicing that sector. So for us, it is the scale and capability that comes out of this, plus an absolute understanding that we can work with each other and that we work well with each other. That's why we believe this is very good for both Saipem shareholders and Subsea 7 shareholders.

I have a follow-up for you, John, as you will run the Subsea business, could you share some thoughts on how we should think about the margin expansion potential of such a large fleet that you will be able to run?

As I said in the previous answer to you, Martin, the fleet is about flexibility, by being able to offer our clients good cost solutions. We've talked a number of times about the challenges this industry has of moving assets halfway around the world to service different needs. It's the complementary nature of the fleet that we have in place today with Subsea 7 and the fleet that Sandro and Saipem have as well. Just trying to make sure that the assets are working in the right place. and are servicing the clients as they need the key to this transaction.

The next question comes from Kevin Roger from Kepler Cheuvreux.

It's mostly in a way of follow-up from what we just touched during the Q&A session. The first one is related to the clients in a sense. Can you share with us some maybe initial feedback that you received because you're going to control a large part of what has been called key vessel, key enablers over the past year and you have some clients such as Petrobras that tried to create a competitive environment, and you have now 2 big players merging and they would control a large part of the key enabler vessel. So what has been the initial feedback maybe that you are getting from clients? And don't you feel that some of them will not be -- maybe a big fan of having one entity controlling vast majority of the fleet. That would be the first one, please. The second one following the one from Mick. Basically, investor will take a kind of 1 year risk on the backlog, 1 year risk of execution, 1 year risk of earnings. So depending on how the execution risk move and potential earnings surprise. Is there any adjustment mechanism that you're scheduled in the merger with, I don't know, player A or player B, that makes a warning in 6 months' time. And so then you're going to have to adjust the exchange share ratio. And maybe the next one, sorry for that, but you just mentioned that the company will be very much offshore with 80% of the EBITDA related to offshore activities. So at the end, should we expect that Saipem 7 would be like we did on TechnipFMC, meaning that 1 year after the merger, you're going to have the listing of Subsea 7 again with the asset of Saipem?

Kevin, many questions here. So I'll ask Sandro to talk about the discussions he's had with the clients and his long-term view on Saipem 7. I can just answer the question you asked about exchange ratio. The exchange ratio is fixed in the agreement here. And that's what we've fixed in terms of where we're at here. So I'll hand over to Sandro to cover the conversation on clients.

Okay. Thank you, john. So clients -- we have a starting point. Clients are never happy about how we price our service because they always want to have a cheaper service. Having said that, the initial feedback we got is a positive feedback. And clearly, I believe that me and John, will never be able to stress enough how it's important for clients getting flexibility on fleet utilization. Having a combined fleet will give us the possibility to be flexible. What does it mean this? It means that any change of schedule, clients they have to accommodate would be much easier in a combined fleet than with 2 different and separate fleet belonging to 2 different companies. This will also take out from clients much of the interface risk when we work, for example, under different contracts. So I'm sure the clients will appreciate this very much because in many projects we are running, then we sign up contracts that then the turn to be executed, maybe 1.5 years or 2 years later. And I can assure you that there is always some schedule adjustment. And this is always very difficult if you have a small vessel because this introduced a small fleet of vessels because this introduced a very much rigidity in the system and stiffness in the system, while having a more flexible if the client tell me, look, I'm in delay, we might, for example, purchase, and I need you to come 2 months later with the largest fleet, I'm sure I can accommodate this. With a very small fleet, I have to tell the clients, sorry, 2 months later I have another job to be done. I can't sell you anymore. So they will appreciate this. I believe that that's the key of the benefit of enlarging the fleet. And together with ability to offer a complete set of offshore services from deepwater, trunk lines, shallow water, we can serve clients in all their needs offshore. I believe that this -- I believe that I gave you a bit of color on what we -- on the client feedback. John, I don't know if you want to continue to answer the following.

Yes, yes, I think I fully concur with that, that's the benefit that we will see through an enhanced capability. The other question for you, Sandro, was your long-term view of Saipem 7 and whether or not one day, the offshore Engineering & Construction business would be spun out was the other question, I think, in that section.

I believe that for the time being, we are very focused to make it happening and to making running at best. Future will be always assessed on an opportunistic manner whatever it makes sense for our shareholders, we will propose to our shareholders. This is the way we see value creation. But for the time being, I would say we're very fully concentrated to make this business happening.

The next question comes from Alessandro Pozzi from Mediobanca.

The first one is on synergies. You mentioned EUR 300 million. I was expecting a little bit higher, to be honest, I guess it's just probably a first conservative estimate. Can you give us maybe some more color on how you arrived to that estimates, the assumptions and whether there is scope for potentially increasing that level of synergies. The second question is on antitrust. Is there any -- how do you see a risk of potential antitrust issues as you go through the merger? And the final one, just maybe the rationale for the EUR 450 million extra dividend to Subsea 7 just before the completion of the merger?

Thank you. I'll take the synergies and then I'll hand over to Sandro to cover the antitrust and the extraordinary dividend. We went through a process where each individual company worked out different views on the main areas of synergy. And as we covered previously, we see areas such as procurement, fleet optimization, sales and marketing and tendering and then just process efficiencies across the company would let us work out after 3 years, an ongoing annual run rate with synergies and the 2 of us were not too far away from the EUR 300 million figure. And that's what we will concentrate on in the first couple of years of these 2 companies together is to realize those synergies and deliver them. We feel reasonably robust in how those figures have been put together and reasonably aligned in how we go and I think, again, we will take a sense check 1 year in, 2 years in to see how we're doing, but the challenge will be there to deliver the EUR 300 million that we've committed to. Maybe Sandro, you want to take the antitrust question.

Okay. Yes, John. So regarding the antitrust, certainly, we'll openly and proactively engage with the regulatory authorities. We know relevant country jurisdiction and explain the significant benefits for the customer of the proposed transaction. Clearly, we cannot comment on this stage on the reaction from regulatory authorities. .

Can you say what will be the combined market share of the new group in the key regions? .

We pretty, let's say, complementary. We stress this many times during the presentation. This means that there are areas where Subsea 7 is very strong, like the North Sea and Saipem is not. So there nothing changes in terms of competition like other areas where Saipem is very strong, while Subsea 7 is not present. So there is no changes in competition. There are very few countries where we really, yes, we do compete each other and will be our, let's say, care to explain anyway, the benefit for customers of the proposed transaction. Then if you want to have some data, we'll give you some data. So in the Middle East, we will add 20% of the combined -- the combined company will have 20% of the market. Same percentage in Latin America, 22% in the North Sea. And so see those are percentages that should not worry the authorities. This breakdown is coming from the revenues we are making in the different areas. So it should be giving you some feedback. Then there was another...

About the dividend.

So the dividend, okay. Saipem will be the surviving entity, which will be incorporated in Italy. The few Saipem 7 will be put forward by CDP Equity and Eni. And given these terms, the parties have agreed both special dividend for Subsea 7 shareholders prior closing. This is the rationale.

And the next question comes from Guillaume Delaby from Bernstein.

Yes. Most of my questions have been answered. So maybe 2 residuals. The first one is why now? We -- you have been discussing forever. You -- everybody knew complement, the question is, are you doing the deal now because important about cultural complementaries between the 2 companies, which from my side, were not obvious. So this is my first question. Why now and what about the cultural complementaries between the 2 organizations? And my second question is regarding Saipem agreement in TechnipFMC for managing the fleet. So I think we should assume that this agreement is dead, correct?

Well, I'll take the first 2 questions, and I'll ask Sandro then to talk about the relationship with TechnipFMC. I think why now? Well, both companies have seen an improvement in our business performance. We've got increased backlogs. We reduced our debt levels, and we're both increasing returns to shareholders. I think it's fair to say that under Sandro's leadership, Saipem has definitely turned the corner in its operational and financial performance. And as we've discussed a number of times on this call, the merger now will give some very good synergy effects for both our shareholders and also for our clients as we optimize the fleets and how they get deployed around the world. We see the customers asking a lot of us these days on bigger projects. They're taking lots of different technologies, carbon capture, some of the new energies that we need to get involved in. So again, for us, we thought that with the benefits we could see as we stand here today with our shareholders and our customers we both thought this was the right time to actually put it together. Culturally, as you may know, my previous history, I spent many years in a joint venture between Subsea 7's predecessor company and Saipem called European Marine Contractors in my early days. I've always said we're much closer to each other than we both think in terms of how we look at it. We're fiercely proud engineers, project managers and offshore operator. We're fiercely proud of technology, we're technology geeks. We really do like technology and capability. And if you look at the history of our 2 companies, we've pushed the limits on what you can do in this industry for decades together. So I think there's a high degree of respect between our employees and both our companies and so I think when we bring these 2 companies together, I think, yes, we are different. Every time we bring any 2 companies together, you have to recognize the differences. But in my view, there's a lot more about us that's aligned and misaligned. I'll then maybe hand over to Sandro to cover the question on TechnipFMC.

Okay. Thank you, John. Sure, regarding the SURF commercial agreement with TechnipFMC. I believe that the answer is very, very simple. Saipem and Subsea 7 will honor all the agreements under written via the closing of the transaction anyway. We're a serious company. So I tend to disagree with the fact that this will be dead or if you consider it dead. We will honor all the spirit of the agreement until the agreement -- until the -- for sure, the agreement is expiring and all the binding commitment we took with TechnipFMC. There is no doubt about that, and they want to be extremely clear. We have only one word and we will honor all we signed before the agreement.

The next question comes from the line of Francesco Sala from Banca Akros.

Just a couple of questions on the fleet. First of all, I wonder whether the company will keep on having an asset-light strategy. And secondly, if you -- we should assume that the company will keep on relying on the leased vessels in the midterm. And thirdly, I wonder whether the current fleet for the combined entity needs some tweaks or some additions? And if yes, in what segment of the market?

If I can maybe answer that question. I think main thing to remember is both companies are very, very busy for the next 2 to 3 years here in terms of backlog that we both already have. So the fleets that we have today, which are both the combination of owned assets and leased assets will absolutely continue. So the model of having a mixture of owned and leased will continue into the new company for certain and then as we've discussed earlier, I think bringing these 2 fleets together really does help provide our clients with a very complementary capability. different technologies, reeling, J-lay, S-lay, for different ways of installing rigid pipelines. All those capabilities, I think, will be within the toolbox of the enhanced company in Saipem. So I would think that we would start off our journey as a combined company with a pretty rounded fleet with a good capability in terms of what we need. So that's the way I think we should think about the asset base that the new company will have moving ahead.

The next question comes from the line of Massimo Bonisoli from Equita.

Congratulations for the deal, 2 questions. One on the merger phasing, the second half of 2026 to complete the merger seems like a long time, why so long? And do you think the merger could happen sooner in case? The second is on synergies. Do you also expect to achieve revenue synergies including greater pricing power on a very large project?

Sandro, do you want to take these 2? .

Yes. Yes, John. So the question is why so long? And let's say, we -- I believe that the timetable that was presented by John was a very clear explanation of why it take so long. So in mid-2021 -- mid-2025, we envisage to achieve a fully termed merger agreement and then at that stage, we will start really to engage all the relevant necessities that have to approve the deal, including the antitrust. So second half 2026, it's a prudent evaluation of the time that we envisage to clear. And -- but that's our best estimate today. If there is any possibility to improve the time, clearly, we will let the market know if conditions are so that we can deliver it quicker. Then the second one was on synergies, we spoke already about synergies, certainly, and we spoke about cost synergies. We didn't brought forward any expected revenue synergies because they are very difficult to be precisely quantified right now. But there will be. We are confident that there will be some revenue synergies coming from -- really from the optimization of our fleet. Let's say, because we will have less cost to serve clients. This will turn into an increased revenue stream for us. I believe that John was explaining that in many situations, to serve a client, for example, we have to cross the ocean with one of our ship, Atlantic and then went we back crossing it back. With a combined fleet, all this transit time can be strongly reduced. And this is turning in a better positioning for us that we can share with the client, not forgetting that the better utilization of the fleet being also less emissions. So that's also another benefit that we can get from the overall optimization that can be realized by the combined entity.

And the next question comes from the line of Victoria McCulloch from RBC.

Just a couple remaining for me. So following on from the why now question. Did the resolution of Saipem issues in Brazil and some of the recent develops in the Thaioil clean fuels project. Did that play any role in the announcement coming in, in the timing that it has? And secondly, is there anything that could delay the merger agreement being signed in the middle of this year and that would therefore have a knock-on impact on the 2026 completions?

I think as we touched on earlier, I think we're very clear that we have a time line here to get the merger agreement done. We will continue along the path as I outlined on Slide 14. But by the middle of this year, we would be seeking to get the merger agreement done. But coming to your first question, the main discussion comes around the benefits to our clients of putting these fleets together and those businesses together and the very complementary nature of clients, geographies, technologies, fleets, vessels. That's what's driven this discussion. And that's been at the heart of this discussion, there are other elements. We've looked at them and got to understand them as we have to do, but it's more to do with -- there is a very clear industrial logic here that as these projects get larger, scale gets bigger, the constant push for new provinces in ultra-deepwater is there, as well as a very, very large conventional business in the Middle East that will continue from many decades ahead. We've discussed both of us, Sandro and myself on our earnings call that the world has found the energy transition quite difficult. And every country in the world is trying to balance out how much oil, how much gas, how much wind, how much different sources of carbon capture do you bring in. Putting this business together allows us the ability to be able to adapt for the changes that will inevitably occur. These changes are happening quite quickly in the world today. So that was the underlying driver of this whole discussion. There are other elements that are needed to be thought through but the crux of this is we want to be able to support our clients for many decades ahead. And this combination, we believe, gives us the scale, the balance sheet, the financial power to be able to be here for the very, very long term for what this industry will need.

If I could just ask a follow-on to that. In the past, both of you have sought on some contracts to seek sort of, I guess, a risk-sharing profile, particularly on large projects or new energy opportunities as we discussed and as you mentioned there, how does the deal from a strategic point of view? Or how is your mindset to large -- particularly large higher risk or lump sum projects given the enlarged entity, does that allow you to take on bigger projects or would you still seek an element of your risk sharing for those?

I think I'll just try to close that conversation out. I think I touched on it in one of the earlier questions. I think it's fair to say that both Sandro and I have been very open in the past 3 years about some of the challenges in sectors like offshore wind. And it's all about taking appropriate risk and reward, and that's what the new company will do, which is exactly what both companies are doing today to find the right balance between risk and reward on the work that we do. We know that the world needs all this stuff building, and we've got to find the right contracting models. And I think as you've seen with feedback on the wind sector for the industry in general, models are changing. Clients are changing the way it's going to be done. We're here to make sure that we make money for our shareholders. And therefore, then we need to get paid an appropriate return for the risks and the balance on the risk and reward that we take. So I am sure that, that will continue into the new company because we're not misaligned today on that at all.

And the next question comes from the line of Sebastian Erskine from Redburn Atlantic.

Just a few kind of follow-ups. I mean, look, on this merger of equals is nil premium for Subsea 7, I guess, I'm curious, are you confident that the Subsea 7 shareholders will be consent with this? I think given where the trading is this morning, given kind of some of the different track records of the business. Are you kind of happy on the shareholder engagement perspective? And I guess maybe some color on steps now going forward as you go to your shareholders for kind of approval. And then just a follow-up on the antitrust comments. I mean, obviously, Brazil, it came up at the CMD Subsea 7. Brazil emerging as a key market for you. I mean what we're seeing, I guess, with Petrobras is a kind of effort pushing back against concentration, and particularly the rigid riser EPCI tenders. I mean some commentary maybe on the implications of this deal for the Brazilian market specifically and the relationship with Petrobras now obviously, Saipem is kind of back in the mix. That would be super.

I take the Subsea 7 shareholder question, and then I'll ask Sandro to take the Brazilian antitrust question. As you know, our key shareholders in the industry has supported this transaction, and you've heard Kristian early on, give his support here. We will contact him and speaking to our shareholders but I think the industrial logic and a long-term view of what's possible here with this combination. I'm sure we'll work for both Saipem and Subsea 7 shareholders. That's the way we view this. Kristian touched on it in his prepared remarks. Each of the steps that Subsea 7 has been along has always been about long-term shareholder value and creating long-term business capabilities. And I'm sure that Saipem 7 will be that part as well. So again, we'll have the dialogues, and we will listen attentively and take feedback from our shareholders, but that's how we start that conversation. And maybe I know, Sandro, you picked up the antitrust question before, so maybe you just want to either reinforce the message you gave last time or give some additional information.

Okay. So on the antitrust, I understand that there is a more specific Brazil Petrobras color. But we will do exactly as we said before, we will engage proactively with the authorities and we will explain the benefit of the business to customer. And now clearly, I cannot predict now which will be the reaction. Specifically in Brazil, what I can say is what I see that in the last years, in the last couple of years, there has been an increased number of contractor participating to tenders issued by Petrobras. So it's true that the combined company will take out one, but it is also true that there are many and more many than we were used to see in that market. So those are the elements that together with the other customary information will be submitted and then we will deal with that.

Congratulations on the announcement.

We have time for 2 more questions. The next one comes from Guilherme Levy from Morgan Stanley.

Congrats on the proposal. My first one, if you could just elaborate on the one-off cost to implement the synergies. I was curious if you can provide us with any breakdown in terms of how much of that might be related to head count reduction or exit from some offices. If you can provide some color on that, that would be great. And also, when that is expected to take place, if in 2026 just after the completion or if that could be a little bit more extended to 2027, 2028? And then the second one, just thinking about the shareholder remuneration policy on Saipem 7. Is there any sort of preference in terms of dividends or buybacks, if we take a look at that at least 40% of free cash flow policy.

I'll take the synergy question, and then Sandro can enhance a bit on the shareholder returns discussions we've had to date. The synergies for us is really around a 3-year program that will take us to get there. So we would expect to be running at EUR 300 million, 3 years post closure. So if we close in second half of 2026, we will be achieving those over a 3-year period. Given the sort of complementary nature of the business, we don't expect any significant impact on headcount. It's more about offices and yards and consolidation and such like that we need to do. We need to bring 2 subsystems together. We need to bring our IT links together. A lot of this is logistical and managing changes whilst we're all very busy running a very strong backlog. So again, it's a pace to allow us to continue to fully support our clients throughout it. But that's the main takeaway on cost elements of synergies. And Sandro on the shareholder remuneration.

Okay, John. We can again stress the following completion of the proposed combination, the combined company is expected to distribute to shareholders at least 40% of free cash flow after repayment of lease liabilities. We have not decided yet on the split between dividends and buyback. This will be -- we will retain certain flexibility, and this clearly will be unlocked in due time the -- when really we will come to the completion.

And the last question comes from Christopher Kuplent from Bank of America.

Let me ask a few mop-up questions, if I may. John, you were just answering on synergies, just to come back on a timetable for when you expect those implementation costs to hit the accounts '26, '27, I imagine the bulk of it. And a quick question on Subsea 7 before you complete the merger, does this share exchange ratio effectively mean you are unlikely to buy back any more shares? And then lastly, again, on synergies and on your free cash flow distribution policy, is it fair enough for us to just add the 2 CapEx budgets together? Or do you expect there to be changes in the combination process?

I'll ask Mark to answer the question on the share exchange ratio and the free cash flow for Subsea 7 going forward, but until we close the merger. In terms of the cost synergies, I think the advice we've given is pretty consistent here. From day 1 of the new company, which will happen at some stage around the second half to 2026. We would start the cost implementation of the synergies. So again, I would model it in that, we'll get a part of '26, all of '27, all of '28 and part of '29 in that. I think that would be a reasonable way to model the cost at this stage, closer to time, we'll be able to give you more color and more detail on that. And maybe, Mark, you can take the 2 questions specifically on Subsea 7.

Yes. Thanks, Christopher. The exchange ratio of 6.688 will remain fixed, you will have noted and the communications that we both intend to distribute dividends to our shareholders this year in 2025, and we've provided expectations of shareholder remuneration next year prior to the completion of the transaction which would be cash dividends as well. So no share repurchases. In terms of free cash flow, Subsea 7's CapEx estimate, which we shared with the market back in November with our third quarter results remains broadly intact for 2025.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.