Schlumberger Ltd agreed to buy Smith International in a $11.34 billion all-stock deal that will boost the oilfield services leader's revenue to double that of its nearest rival.
The deal, still subject to shareholder and regulatory approval, values Smith Stock at $45.84, a 37.5 percent premium over Thursday's closing price, according to a joint statement by the companies on Sunday.
The acquisition is the latest in a string of oilfield services deals as the sector begins to recover. Profits had plummeted as oil and natural gas companies cut spending on projects when energy prices collapsed along with economic activity in 2008.
After the deal, Schlumberger would boast revenue double that of nearest rival Halliburton Co , which had 2009 revenues of $14.7 billion.
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 said it expects the acquisition to add to earnings per share in 2012. The company also expects to realize pretax synergies after costs of about $160 million in 2011 and about $320 million in 2012.
Under the terms of the deal, Smith shareholders will receive 0.6966 shares of Schlumberger for each Smith share. On closing, Smith shareholders will hold about 12.8 percent of Schlumberger's outstanding shares.
The Wall Street Journal on Friday had reported Schlumberger was in advanced talks to buy Smith International. Smith International shares climbed 13 percent on Friday to $37.70. Shares in Schlumberger, which has principal offices in Paris, Houston and The Hague, closed down 2.9 percent at $63.90.
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.
But a source familiar with the deal said the two companies do not expect to have to sell any major assets to satisfy government antitrust enforcers.
A spokesman for Schlumberger on Sunday declined to comment on possible antitrust issues. He said the company will hold a conference call to discuss the deal on Monday morning.
Smith Chief Executive John Yearwood and new chief financial officer, William Restrepo, previously worked at Schlumberger for two decades. Yearwood was senior advisor to Schlumberger CEO Gould between 2006 and 2008.
The two companies have long considered a deal and have been circling each other for four or five years, according to two sources familiar with the situation. But they were never able to agree on a price, according to one source. The most recent talks started two or three weeks ago, the source said.
Baker Hughes Inc , the third-largest oilfield services company, is due to close its $6 billion takeover of smaller peer BJ Services Co this quarter. Weatherford Ltd , the fourth largest U.S.-listed player, bought the services unit of BP Plc affiliate TNK-BP last year.
Goldman Sachs Group was financial adviser and Baker Botts was legal counsel to Schlumberger. UBS was financial adviser and Wachtell, Lipton, Rosen & Katz was legal counsel to Smith International.
(Reporting by Elinor Comlay and Michael Erman; additional reporting by Matt Daily in New York and Braden Reddall in San Francisco, Editing by Tim Dobbyn, Bernard Orr)