Ensco Plc plans to buy rival Pride International Inc

for about $7.3 billion in a deal that would create the world's second-largest offshore oil and gas driller.

The deal announced on Monday sets the purchase price for Pride's shares at $41.60 each, a premium of 21 percent to Friday's closing price, and would give Ensco a major presence in the growing deepwater markets off Brazil and west Africa.

Apart from giving it more pricing clout, the deal deepens Ensco's pockets for funding new rig-building as contractors scramble to offer the most capable equipment to oil companies drilling in increasingly tough waters.

Pride and Ensco combined are going to be in all the major oil-producing regions now, said Kurt Hallead, co-head of energy research at RBC Capital Markets in Austin, Texas.

The industry has been hit hard by the deepwater drilling moratorium in the Gulf of Mexico and stringent shallow-water regulations following last year's BP Plc well blowout, which led to the worst-ever U.S. maritime oil spill.

But major energy companies such as Chevron Corp and Royal Dutch Shell Plc expect to continue spending billions of dollars offshore, encouraged by strong oil prices.

With a total of 74 rigs, including six being built, the deal would lift the combined company past Noble Corp to be second only to Transocean Ltd , which has 136 rigs.

London-based Ensco's fleet is deployed in the Gulf of Mexico, Europe, the Middle East and Asia, and the deal would add Pride's five rigs off the west coast of Africa and nine rigs off Brazil.

Ensco did not even have any rigs in South America before it agreed to move a permit-less Gulf of Mexico rig to work off French Guiana in December. Then just last week, it struck a deal to move a rig to Brazil from Australia.

Hallead said companies tend to view four rigs in one particular area as efficient. When you're talking about shore bases, it's always better to have critical mass, he added.

The new company would have 21 deepwater rigs working or being built, equal to Noble but behind Transocean's 44, giving it a strong position in the most lucrative market segment, which often pays rig owners more than $500,000 per day.

Ensco said rig construction would absorb much of the new company's cash flow in the next few years. Combined, they have added 12 new vessels in the past few years, and now would have the second-youngest deepwater fleet, after Seadrill Ltd.

Seadrill, an acquisitive Norway-listed company, had long been seen as Pride's natural buyer, given that it owns nearly 10 percent of Pride's shares. Seadrill Chief Financial Officer Esa Ikaheimonen told Reuters the Ensco offer looked like a decent number and said the deal would be positive for the sector.

Offshore drillers are likely to see plenty of acquisitions in the coming months and years as they scramble to increase their size and market share and challenge Transocean, which itself bought GlobalSanteFe in 2007 for about $15 billion.

SAVINGS EXPECTED

Pride and Ensco's combined company, which would be based in Britain, would likely realize annual cost savings of $50 million from 2012. The deal is expected to add to Ensco's earnings per share in 2011 and 2012.

Shareholders of Houston-based Pride would get 0.4778 newly issued Ensco share plus $15.60 cash for each Pride share. The deal would be financed through a combination of existing cash on the balance sheet and newly issued Ensco shares and debt. Total cash paid to Pride shareholders would be about $2.8 billion.

Ensco has commitments from Deutsche Bank and Citibank to finance the incremental debt required for the deal. Ensco's lead adviser was Deutsche, while Citi also served as financial adviser and Baker & McKenzie LLP acted as its legal adviser.

Pride was advised by Goldman Sachs and its legal advisers are Baker Botts LLP and Wachtell, Lipton, Rosen & Katz.

Pride shares were up 16.2 percent at $39.96 in afternoon trading, while Ensco was down 4.5 percent at $51.95.

(Additional reporting by Michael Erman; Editing by Maureen Bavdek and Steve Orlofsky)