Oil-field firm Schlumberger to buy Cameron in $14.8B deal

Schlumberger Ltd. has reached a deal to buy Cameron International Corp. for $14.8 billion, allowing the world's largest oil-field contractor to bundle gear and services more effectively into one package.

Cameron stockholders will receive 0.716 Schlumberger share and a cash payment of $14.44 in exchange for each Cameron share, according to a regulatory statement Wednesday. The deal valued at $66.36 a share is a 56 percent premium to Cameron's closing share price on Tuesday.

The agreement would help Schlumberger become a one-stop shop for crude explorers, adding Cameron's valves, pumps and blowout preventers to its in-house engineering expertise. The slump in oil prices over the past year has forced oil companies to cut back on costly exploration and investment, fueling competition among service providers for a chunk of that shrinking spending.

"This is a sign that Schlumberger sees a market bottom," Matt Marietta, a Houston-based analyst at Stephens Inc. who rates the stock a buy and owns none, said Wednesday in a telephone interview. "Schlumberger didn't have to agree to it this week. They could have waited for things to worsen. It can probably bring some confidence back to energy investors that we are approaching a bottom."

Schlumberger shares fell $2.34, or 3.4 percent, to close Wednesday at $70.09, while Cameron rose $17.46, or 41 percent, to close at $59.93.

The acquisition marks a shift in the oil-field service and equipment industries, which have generally stayed at arm's length from each other.

Cameron is the world's largest provider of the so-called surface wellheads, a vital set of valves that sit atop the well to control the flow of oil from the underground reservoirs. Schlumberger is looking to create even more efficiency with drilling and production by creating a single operating system that marries its well engineering and digital mapping of oil pockets with Cameron's critical gear.

"Cameron is a great hardware company, and we have all these digital capabilities and the leading downhole portfolio," Schlumberger Chief Executive Officer Paal Kibsgaard told analysts and investors during a conference call. "The combination of all these factors is why we're very excited about the transaction."

The deal follows the proposed merger between the world's second- and third-largest oil-field services providers Halliburton Co. and Baker Hughes Inc. in a deal valued at about $35 billion when it was announced in November.

The Cameron purchase is diversification into oil-field equipment supply rather than consolidation of a rival service company, so it is unlikely to face an antitrust challenge, Marietta said.

The companies had been partners in a joint venture they created in 2012 called OneSubsea in a long-term bid to lower the overall cost and improve performance in deep-water development. By actually owning its joint-venture partner, Schlumberger will be able to work that plan more effectively, Kibsgaard said.

Given Schlumberger's history of buying partners, including its 2010 deal for rival Smith International Inc., this deal was expected to eventually happen, Kurt Hallead, an analyst at RBC Capital Markets, wrote in a note to investors.

"But this is sooner than we had thought," he wrote.

The companies must see potential for gaining from the deal since they've worked so closely together, Alain Parent, an analyst at Natixis SA said by telephone. "They want to go one step further after the joint venture."

Service companies typically outsource a lot of their fabrication, while Cameron takes a lot of pride in its manufacturing, Dennis Cassidy, managing director at financial consultant AlixPartners LLP, said in a phone interview.

"How those philosophies mesh and how they measure productivity will be an interesting transition," Cassidy said.

Information for this article was contributed by Jim Polson of Bloomberg News.

Business on 08/27/2015

Upcoming Events