Key insights
- Morgan Stanley upgraded Subsea 7 to a Top Pick following Brazil's CADE approval of its merger with Saipem, removing a key hurdle. This decision is expected to lead to better pricing of the deal completion, benefiting both stocks. The brokerage cited new offshore projects, contract awards, and EBITDA margins as drivers for Subsea 7. While Petrobras can appeal, the swift and favorable ruling suggests positive momentum for the energy services sector.
Investing.com -- Morgan Stanley named Subsea 7as its new Top Pick in European energy services, after Brazil’s antitrust agency approved the company’s merger with Saipem without remedies.
The brokerage replaced SBM Offshore NV with Subsea 7 as its top sector pick following the decision by Brazil’s Administrative Council for Economic Defense, known as CADE, which it called "the single biggest hurdle to deal completion."
Saipem was last trading up 0.18% to €4.5310 as of 06:58 ET (10:58 GMT), while Subsea 7 held rose 1.23% to NOK 347.
"The decision this evening was quicker and more beneficial to the companies than expected," Morgan Stanley said.
CADE approved the merger between Subsea7 and Saipem on the evening of June 23 without remedies.
Brazil had been seen as the key bottleneck to approval since it is the one geography where activities from both companies materially overlap, the brokerage said.
Morgan Stanley said consensus among market participants had been for deal approval from CADE, though some form of light remedy had been expected, such as making bids more transparent or making leases to the lowest bidders mandatory for the combined company in Brazil, without requiring asset disposals.
The agency’s deadline was early November, and Morgan Stanley had expected approval could still take a couple of months.
Deal completion remains guided for the second half of 2026, the brokerage said, adding that interested parties in Brazil, including Petrobras, can still appeal CADE’s decision.
Morgan Stanley said it expects the market to "now start to better price deal completion" and expects both stocks to perform well.
On a relative basis, Subsea7 still trades at a roughly 5% discount relative to Saipem’s shares, the brokerage said, which formed the basis for the Top Pick designation.
The brokerage listed new offshore energy projects, new contract awards, EBITDA margins and the merger deal with Saipem as investment drivers for Subsea 7.
Risks to the downside include downward earnings revisions, a downturn in the energy project environment, cost overruns, project execution setbacks, and the market being "unconvinced of merger benefits with Saipem." The merger was first announced in February 2025.
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