Swiss offshore drilling company Transocean Ltd. agreed to buy back the master limited partnership that it formed two years ago, under pressure from Carl Icahn, in a deal that values Transocean Partners LLC at about $514 million.

Transocean, which owned nearly 52% of Transocean Partners common stock, agreed to swap 1.1427 of its shares for each unit of the master limited partnership. Based on the closing prices Friday, the offer values Transocean Partners at $12.56 a share, a 15% premium to stock's closing price of $10.92.

Transocean Partners's initial public offering was priced at $22 in the summer of 2014. At the time, forming master limited partnerships had become a popular strategy for energy companies as the structure enabled companies to forgo paying corporate income tax. When Transocean first announced plans for the IPO, it made other moves to placate activist investor Mr. Icahn, including a dividend and a smaller board of directors.

However, the subsequent slump in oil prices caused energy producers to dial back investment and exploration plans, prompting two years of spending cuts, canceled projects and tens of thousands of layoffs.

Transocean Partners, which traded as high as $29.43 in the weeks following the IPO, hit a low of $5.89 in January. Transocean has lost about 73% of its market value since the IPO. In premarket trading, Transocean shares fell 1.2% to $10.86, while Transocean Partners shares added 0.7% to $11.

Transocean Chief Executive Jeremy Thigpen said the deal announced Monday would give Transocean the benefit of a "simplified administration and governance" and cost savings. Under the deal, Transocean expects to issue about 22.7 million shares.

The deal is subject to the customary approvals and conditions, including the approval of more than half of the Transocean Partners units not held by Transocean.

After the deal is completed—expected in this year's fourth quarter—Transocean also would acquire 51% of ownership interests in drillships Discoverer Inspiration, Discoverer Clear Leader and Development Driller III, currently owned by Transocean Partners.

Write to Brittney Laryea at brittney.laryea@wsj.com

(END) Dow Jones Newswires

August 01, 2016 08:45 ET (12:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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