Schlumberger To Buy Smith Int’l?

Oilfield services leader Schlumberger Ltd. (SLB: 63.90 -1.91 -2.90%) is in advanced level of discussion to buy Smith International Inc. (SII: 37.70 +4.35 +13.04%), as per this morning’s Wall Street Journal report. The deal still has chances of not materializing, according to the report.

Though the final numbers have yet to come out, the deal price is hovering around $9 billion, by taking a typical deal premium of 20% on the current market capitalization of Smith.

Following the finalization of the deal, if done, the joint entity’s revenue will be double that of its nearest rival Halliburton Co. (HAL: 31.79 +0.25 +0.79%). The Journal also stated that both Schlumberger and Smith had come close last year at different times to finalize the deal, but left it undecided due to price-related issues.

Both companies are Houston, Texas-based. Smith is engaged in providing a comprehensive line of products and engineering services to the oil and gas exploration and production industry, as well as to the petrochemical and other related industries. Schlumberger provides technology, project management and information services to the global oil and gas industry, including drilling fluids, directional drilling and real-time drilling analysis and project management.

We view the transaction as a win-win for shareholders of both companies, as they would get a more diversified oilfield services exposure. Given that both companies cover the same geographical regions, Smith is a good strategic fit for Schlumberger. In addition, the merger could do away with Smith’s struggle to leverage its international expansion to cross-sell its previously acquired W-H Energy product lines – mostly unconventional gas drilling.