Schlumberger to acquire Cameron for $12.7 bn

Schlumberger Ltd, the world's largest oil-field service company, yesterday said it would buy smaller rival Cameron International Corp for $12.7 billion in cash and stock.

According to commentators, the energy sector is expected to see consolidation with companies facing hard times due to low oil prices and drop in drilling activity.

The deal follows months after  Schlumberger's two biggest competitors, Halliburton Co and Baker Hughes Inc, agreed to combine in a $35-billion deal, which is currently under regulatory review (See: Halliburton to acquire rival Baker Hughes for $34.6 bn).

The deal values the Houston-based, drilling equipment maker and supplier of maintenance equipment to pipelines, refineries and oil-and-gas wells - at $66.36 a share, a 56.3-per cent premium to Tuesday's closing price. Cameron's shares plunged 42 per cent in the past 12 months as the price of oil slumped. But stock in Cameron surged 41 per cent to $59.81 midday yesterday. Shares of Schlumberger were down 4.7 per cent to $69.11.

The combination of Schlumberger and Cameron, two of the best known names in oil-field services, would create an energy technology powerhouse, executives from the two companies said yesterday during a conference call.

The agreement was unanimously approved by the boards of directors of both companies.

''By bringing together Cameron and Schlumberger, we will be uniting two great companies with successful track records, performance and value creation. We look forward to working closely with Schlumberger to achieve a seamless post-closing integration and long term value for all of our stakeholders.''

Under the terms of the agreement, Cameron shareholders will receive 0.716 shares of Schlumberger common stock and a cash payment of $14.44 in exchange for each Cameron share.

Schlumberger expects to realise pretax synergies of approximately $300 million and $600 million in the first and second year, respectively. Initially, the synergies are primarily related to reducing operating costs, streamlining supply chains, and improving manufacturing processes, with a growing component of revenue synergies in the second year and beyond. Schlumberger also expects the combination to be accretive to earnings per share by the end of the first year after closing.

The transaction combines two complementary technology portfolios into a ''pore-to-pipeline'' products and services offering to the global oil and gas industry. On a pro forma basis, the combined company had 2014 revenues of $59 billion.

Paal Kibsgaard, chairman and chief executive officer of Schlumberger remarked, ''This agreement with Cameron opens new and broader opportunities for Schlumberger. At our investor conference in June 2014, we highlighted how the E&P industry must transform to deliver increased performance at a time of range-bound commodity prices. With oil prices now at lower levels, oilfield services companies that deliver innovative technology and greater integration while improving efficiency, which our customers increasingly demand, will outperform the market."