CGG lines up senior debt, hopes for approval of Petroleum Geo's geophysical business acquisition

By Sara Rosenberg

New York, Sept. 2 - Compagnie Generale de Geophysique Group plans to use about $400 million of senior debt financing to fund the acquisition of Petroleum Geo-Services ASA's geophysical business if an acquisition agreement can be worked out.

Citigroup Global Markets and RBC Capital Markets would be the lead banks on the financing.

CGG has proposed to purchase the geophysical business for $900 million, consisting of $800 million in cash and $100 million in CGG shares, according to a company news release.

The $400 million in senior debt, combined with about $400 million in convertible financing from Onex Corp., would fund the cash portion of the transaction.

Onex has already agreed to purchase $85 million of CGG's eight-year 7.75% convertible subordinated notes. Onex may provide an additional $315 million of convertible subordinated debentures if a definitive purchase agreement is executed and other customary conditions are satisfied. But, CGG may substitute alternative sources of equity in whole or in part for this $315 million convertible debenture, the release said.

CGG expects to hold an extraordinary shareholders meeting toward the end of October to approve the terms of this transaction.

CGG encountered a hitch when Petroleum Geo-Services rejected its offer after the management and board of directors found the proposal to be "inadequate in terms of price and other conditions," a Petroleum Geo-Services news release said.

Standard & Poor's placed the company's BB long-term corporate credit rating on CreditWatch with negative implications following CGG's acquisition proposal announcement Thursday because of the additional leverage that would be associated with the transaction.

"We will resolve the CreditWatch placement once the final financial parameters of the acquisition have been established, assuming CGG's offer is successful, and once pro forma information is fully available," S&P credit analyst Eric Tanguy said in the release.

CGG is a Paris-based provider of seismic data acquisition, processing and geoscience services and software to clients in the oil and gas exploration and production business and a manufacturer of geophysical equipment.

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