Schlumberger to acquire Smith International

Oil and gas services provider Schlumberger Ltd. announced plans to acquire Smith International Inc. in a stock-for-stock transaction worth an estimated $11 billion.

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, Feb. 22 -- Oil and gas services provider Schlumberger Ltd. announced plans to acquire Smith International Inc. in a stock-for-stock transaction worth an estimated $11 billion.

Both companies’ boards unanimously approved a definitive merger agreement. Smith, based in Houston, provides products and engineering services used during oil and gas drilling, completions, and production.

Among its products and services, Smith provides drilling and completion fluids; solids control and separation equipment; waste-management; water-treatment systems; production chemicals; directional drilling tools and services; two-cone, three-cone, and diamond drillbits; turbine drilling products; and drilling and fishing tools.

Subject to Smith stockholder approval and customary regulatory approvals, closing is expected in this year’s second half. Upon closing, and issuance of new Schlumberger shares, Smith shareholders are expected to own 12.8% of Schlumberger’s common stock.

Terms call for Smith shareholders to receive 0.6966 of a share of Schlumberger in exchange for each Smith share. Based upon Feb. 18 closing stock prices for both companies, the agreement places a value on Smith stock of $45.84/share.

Andrew Gould, Schlumberger chairman and chief executive officer, said the Smith acquisition will add Smith’s drilling expertise and its drillbits to Schlumberger’s product offerings.

Gould believes increased levels of drilling are required to sustain and increase global oil production. He said more wells are being drilling in challenging environments and new resource plays, which increases a project’s complexity.

“We firmly believe, however, that the next breakthrough will be through engineered drilling systems that optimize all the components of the drillstring, allowing our customers to drill more economically in demanding conditions,” Gould said.

Schlumberger expects the acquisition will generate pretax savings of about $160 million in 2011 and $320 million in 2012. The merger is expected to increase earnings per share in 2012, said the company, which has major corporate offices in Houston, Paris, and The Hague.

The acquisition will increase Schlumberger's ability to compete with rival Halliburton Co. Last year, Baker Hughes Inc. announced a $5.5 billion deal to acquire BJ Services Co.

The US Department of Justice’s antitrust division has asked for more information from Baker Hughes and BJ Services regarding the proposed merger of the two firms (OGJ Online, Oct. 19, 2009).

Analysts expect antitrust regulators will closely examine Schlumberger’s acquisition of Smith.

Smith employs more than 20,000 employees operates through three operating segments—M-I SWACO, Smith Oilfield, and Wilson. Smith said two thirds of its revenues are concentrated in markets outside the US.

Both Schlumberger and Smith own M-I Swaco, which sells drilling fluids, as a joint venture . Schlumberger currently owns 40%.The Smith acquisition means Schlumberger will own 100% of M-I Swaco.

Contact Paula Dittrick at paulad@ogjonline.com.

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