Schlumberger to Buy Cameron International for $12.7 Billion -- 6th Update
August 26 2015 - 01:31PM
Dow Jones News
By Alison Sider And Lisa Beilfuss
Schlumberger Ltd., the world's largest oil-field service
company, said Wednesday it would buy smaller rival Cameron
International Corp. for about $12.74 billion in cash and stock.
Massive consolidation is expected across the energy space as
companies struggle to deal with low oil prices and a pullback in
drilling activity. The deal comes months after Schlumberger's two
biggest competitors, Halliburton Co. and Baker Hughes Inc., agreed
to merge as a way to weather the downturn. That $35 billion deal is
still undergoing regulatory review.
The price tag values Houston-based Cameron--which makes drilling
equipment and supplies maintenance equipment to pipelines,
refineries and oil-and-gas wells--at $66.36 a share, a 56.3%
premium to Tuesday's closing price. Cameron's shares have been
falling as the price of oil plunged over the past year, with shares
down 42% in the last 12 months. But stock in Cameron surged 41% to
$59.81 midday Wednesday. Shares of Schlumberger fell 4.7% to
$69.11.
The combination of Schlumberger and Cameron, two of the best
known names in oil-field services, will create an energy technology
powerhouse, executives from the two companies said Wednesday during
a conference call.
Schlumberger's expertise is focused underground, helping
companies find new oil and gas reserves and coax more fuel out of
existing discoveries.
Cameron creates the equipment that sits on the surface at the
top of a well, and is perhaps best known as the maker of a piece of
safety equipment that malfunctioned and helped trigger the 2010
Deepwater Horizon oil spill disaster. It settled with BP, the
well's operator, for $250 million. Cameron later benefited from new
regulations on oil wells as companies upgraded their equipment in
the wake of the disaster.
"The real excitement here is around what we can create by
combining our technology offerings," said Schlumberger Chief
Executive Paal Kibsgaard, adding "we will basically generate better
performance for our customers."
Helping oil companies unlock oil and gas stores more cheaply has
become especially pressing for oil-field service providers as
crude-oil prices linger at their lowest levels this decade.
Companies like Schlumberger and Halliburton, as well as smaller
service providers, have had to lay off tens of thousands of workers
around the world this year and idle hundreds of drilling rigs amid
sharp spending cuts by their energy company customers.
Analysts said the deal didn't come as a complete surprise.
Schlumberger and Cameron are already partners in a joint venture,
OneSubsea, which focuses on drilling and managing subsea wells in
extremely deep water offshore.
The deal is also unlikely to be the last combination of
oil-field service companies, the part of the energy industry that
has borne the brunt of the pain inflicted by lower oil prices.
While many energy observers had hoped oil prices might recover
in the second half of 2015, expectations for weaker demand from
China and the possibility of new crude supplies flowing out of Iran
have pushed back expectations for a rebound. Analysts at UBS AG say
oil-field service companies could be under pressure until 2017,
which could prompt more mergers and acquisitions.
"We believe that more M&A opportunities are likely to evolve
between the larger oil service and equipment companies," Wells
Fargo analyst Judson Bailey said. "The driving force, in our view,
will be the ability to provide a suite of technology and product
lines to help the world's biggest operators lower costs and enhance
returns in areas like deep water and U.S. shale."
Schlumberger is taking advantage of sharp share price declines
during the downturn. Although it is paying a high premium based on
Cameron's current price, the bid represents a 10% discount to where
the company's shares traded a year ago.
Other parts of the energy sector, including pipelines and
oil-and-gas producers, are also consolidating amid languishing oil
prices.
Earlier this year, Royal Dutch Shell PLC said it would pay
nearly $70 billion for Britain's BG Group PLC; pipeline giant
Energy Transfer Equity LP offered $48 billion to buy Williams Cos.;
and a partnership controlled by refiner Marathon Petroleum Corp.
announced plans to acquire MarkWest Energy Partners LP for $15.8
billion.
Paris-based Schlumberger said it expects to complete the Cameron
acquisition in the first quarter of 2016, subject to approval by
Cameron shareholders as well as regulatory clearance.
The enterprise value of the deal, which is $14.8 billion,
includes the assumption of $1.1 billion in debt, a Schlumberger
spokesman said.
The company expects pretax synergies of about $300 million in
the first year and $600 million in the second year after the deal
closes. The transaction will add to per-share profit by the end of
2016, Schlumberger said.
Write to Alison Sider at alison.sider@wsj.com and Lisa Beilfuss
at lisa.beilfuss@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
August 26, 2015 13:16 ET (17:16 GMT)
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