The Tortured History of the Transocean Dividend
NEW YORK ( TheStreet) -- If eliminating the $1 billion annual dividend was the right move for Transocean(RIG) management team to make, it was a right move that once again highlights the suspect course the company is on.
Transocean said Monday its board won't recommend a dividend payment in 2012. The company is incorporated in Switzerland, where Swiss law requires the dividend to be voted on annually.
With the board stating it does not want to pay a dividend in 2012, shareholders have little hope of mounting a successful proxy challenge by proposing a dividend as a separate issue for Transocean's annual meeting.
Monday seemed to be the day for Swiss-based oil service companies to release bad news, as Weatherford International (WFT) said on Monday -- in not releasing earnings details for the fourth quarter 2011 -- that it still can't figure out exactly what it did wrong in its last four years of financial statements, almost exactly a year after announcing it had uncovered weakness in internal controls.
Transocean shares declined by 3% on Tuesday on elevated volume after its dividend announcement.
There may have been some investors who were surprised by the dividend being pulled, but they shouldn't have been. Given the trouble the stock has run into in the past six months, with its operating costs rising and its credit rating unstable, most analysts felt killing the dividend was the prudent financial decision.
In fact, the larger history of the Transocean dividend is tortured. Shareholders pressured Transocean management for years to pay a dividend, but management was reluctant to offer one.
As far back as 2009, Omega Advisors CEO Leon Cooperman, among the better known U.S. hedge fund managers, was referring to his call for a Transocean dividend as a broken record. Cooperman is one of the largest holders of Transocean shares and was often on quarterly conference calls pounding management over the lack of a dividend given the strength of its balance sheet.
Transocean management finally relented and said it would offer a dividend in 2010, just as the Macondo well was getting ready to blow, giving it one more way -- albeit an unwelcome way -- to stall on the dividend. Transocean finally added that dividend in 2011. It turned out to be a brief life.
Transocean shares are now down nearly 40% in the past year and in late 2011 the two major rating agencies, Standard & Poor's and Fitch, began discussing Transocean in junk bond terms. The negative ratings outlook coincided with a $1 billion debt offering in November, when S&P rated the deal BBB- and put the company on "negative" outlook.
At the same time as the debt deal, Transocean issued 26 million shares in a secondary equity offering. At the time of the secondary offering, Transocean shares were near an all-time low, not the typical time for a dilutive equity offering.