Under the deal announced on Sunday, Smith shareholders will receive 0.6966 shares of Schlumberger for each Smith share. The deal values Smith stock at $45.84, a 37.5 percent premium over Thursday's closing price.
Schlumberger said it expects the acquisition to add to earnings per share in 2012. After the deal, expected to be completed in the latter half of the year, Schlumberger would boast revenue double that of nearest rival Halliburton Co
The acquisition expands Schlumberger's arsenal as the weakened sector begins to recover. Profits plummeted as oil and natural gas companies cut spending on projects when the boom collapsed in 2008.
Smith's drilling technologies, other products and expertise complement our own, while the geographical footprint of Schlumberger means we can extend our joint offerings worldwide, Andrew Gould, chief executive of Schlumberger, said in a statement.
Schlumberger expects to realize pretax synergies after costs of about $160 million in 2011 and about $320 million in 2012.
The Wall Street Journal on Friday had reported Schlumberger was in advanced talks to buy Smith International.
The deal is still subject to shareholder and regulatory approvals. Analysts on Friday said the deal would likely get a hard look from antitrust regulators.
Both companies currently operate M-I SWACO, which sells drilling fluids to the oil and gas sector, as a 60-40 joint venture.
Shares in Smith International closed up 13 percent at $37.70 on Friday, while shares in Schlumberger closed down 2.9 percent at $63.90.
(Reporting by Elinor Comlay; Editing by Tim Dobbyn)