Grant Prideco to acquire Reed Hycalog from Schlumberger

Grant Prideco signed a definitive agreement to acquire Reed-Hycalog for $255 million in cash, about 9.7 million shares of Grant Prideco common stock, and the assumption of about $5 million in debt.

By OGJ editors

HOUSTON, Oct. 28 -- Grant Prideco Inc., Houston, has signed a definitive agreement to acquire Schlumberger Ltd.'s Houston-based drillbit maker Reed-Hycalog for $255 million in cash, about 9.7 million shares of Grant Prideco common stock (valued at about $90 million), and the assumption of about $5 million in debt.

The transaction, which is being valued at a total of about $350 million, is expected to close by yearend, pending certain regulatory approvals, Grant Prideco said.

For the 12 months ended June 30, Reed-Hycalog had revenues of $228 million and earnings of $52 million, before interest, taxes, and depreciation, the company said. For the same time period, Grant Prideco made revenues of $711 million and BITDA earnings of $140 million.

Grant Prideco called the acquisition "an excellent strategic and industrial fit" for the company's worldwide drill stem technology. "Long term," said Grant Prideco Pres. and CEO Michael McShane, "we expect to grow Reed-Hycalog's business and to realize synergies in technology, manufacturing, and sales."

In addition to its own stock, Grant Prideco financed this transaction through a new credit facility of about $265 million.

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"The strategic rationale for the acquisition is product line extension, not industry consolidation," noted Lehman Bros. Inc. analyst James Crandell. Crandell went on to say that the benefits of the deal included:

-- The complementary nature of Reed-Hycalog's drillbits and Grant Prideco's drill stem

-- The earnings accretion.

-- The expected technology, manufacturing, and sales synergies.

"Reed-Hycalog will remain a stand-alone operation in order to reestablish its project line focus and thereby its profitability," Crandell concluded.

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