Schlumberger Ltd, the world’s biggest oilfield services company, has agreed to purchase fellow industry player Smith International Inc for about US$11 billion in stock in a move to diversify its product offerings and better compete with rival Halliburton Co.
The deal, announced on Sunday, boosts Schlumberger’s portfolio just as business is beginning to recover.
Smith, based in Houston, makes drilling tools, bits and other products for the oil and gas industries. Schlumberger has main offices in Paris, Houston and The Hague, Netherlands.
Under terms of the transaction, Smith stockholders will receive 0.6966 of a Schlumberger share for each share held. Based on Schlumberger’s closing stock price on Friday of US$63.90, that values Smith shares at US$44.51 each. Based on Smith’s 247.4 million shares, the all-stock purchase is worth US$11.01 billion.
The deal values Smith shares at a 25 percent premium to their closing price on Thursday before reports of the companies’ merger talks sent Smith’s shares soaring. Smith chief executive John Yearwood said the acquisition, which has been unanimously approved by both companies’ boards, is good for shareholders.
Schlumberger reported profits of just over US$3 billion on US$22.7 billion in revenue last year. Smith is less than half its size, but still a significant player, earning about US$1 billion on revenue of US$8.2 billion last year. The company employs more than 21,000 workers worldwide.
Because of overlaps in the two companies’ businesses, Schlumberger said it expects to see pretax savings of about US$160 million next year and US$320 million in 2012. Earnings per share are expected to benefit starting in 2012.
Smith shareholders will own about 13 percent of the combined company once the deal is completed, likely in the second half of this year.
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