When Western Geophysical and Geco-Prakla merged in 2000, it suddenly put their main competitors — CGG, Veritas DGC and PGS — at a distinct disadvantage. The five companies had been relatively competitive up to that point, but Western and Geco were the largest two of the five, and their union dwarfed the remaining three companies.

What’s transpired since then has been similar to a shell game where any two shells can be uncovered at one time. Since 2002 all three possible merger combinations have been tried. PGS and Veritas took a go that year, struggling for several months to find common ground before calling the merger off in the summer months. A couple of years later, CGG took an active interest in PGS, buying up a considerable amount of its stock in order to exercise more control over the company’s management and then making a US $900 million offer for PGS’s geophysical services business. That agreement too fell short of coming to fruition. Publicly CGG expressed regret that the merger couldn’t go forward because its management team felt that consolidation was good for the industry; privately team members expressed concern that, while PGS showed positive earnings, its debt structure was a big bite to swallow. PGS, meanwhile, had gone through restructuring and was ready to continue forging its own course.

So the final combination — CGG and Veritas — seemed the only remaining possibility, unless WesternGeco wished to swallow a competitor whole. After much speculation, the merger has finally taken place.

Having seen two of these proposed mergers drag on for months and then collapse, I must admit I was a wee bit skeptical about this one. The official announcement came Sept. 5, 2006, at a time when the geophysical contracting industry was already so busy that managing a merger on top of everything else seemed sheer folly. Additional information trickled in — in November, the Committee on Foreign Investment in the United States concluded its review relating to the merger. Election forms were sent to shareholders in early December. On Jan. 9, 2007, both companies received shareholder approval for the merger. It was completed Jan. 12, and on Jan. 15 the new company, CGGVeritas, was formally announced.

What’s wrong with this picture? Absolutely nothing. And therein lies the surprise. It seems to have been fairly painless, at least by merger standards. Neither company hit any snags along the way. It would seem as if the fates smiled on this particular union.

I suspect that more than fate was involved, however. CGG’s Chief Executive Officer Robert Brunck has been espousing the benefits of continued consolidation in the seismic industry, particularly on the marine side, since the late 1990s when the industry tanked due to overcapacity.

Overcapacity isn’t really an issue now. But a realignment of CGG’s assets might be. According to analysis in First Break, the company has long had a strong presence on land, but that market share is being eaten away by foreign competition. Meanwhile, the company has been in a steady bid to increase its marine presence, purchasing vessels from Aker Geo, buying equipment manufacturer Sercel and acing out Fugro to purchase Exploration Resources, and its fleet, in 2005.

With this latest announcement, the combined company will have 20 vessels. And it is now larger than WesternGeco.

So congratulations to the newlyweds. And as with any marriage, I guess time will answer some of the key questions: Why consolidate now, and not when the market was down? How will the combined behemoth weather the next downturn? And what will happen to PGS?
Watch this space.

NOTE: This column may have misleadingly given readers the impression that CGG had recently bought equipment manufacturer, Sercel, as part of its strategy to increase its marine presence. In fact, Sercel has been the equipment manufacturing arm of CGG since 1962.