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Exxon & XTO Merger Approved: Energy Mergers Galore Coming? (XOM, XTO, BJS, BHI, SLB, SII)

247wallst — Tue, 16 Mar 2010 19:05:56 +0000

When Exxon Mobil Corp. (NYSE: XOM) announced that it was going to acquire XTO Energy Inc. (NYSE: XTO)for $31 billion in an all-stock transaction ($41 billion after debt assumption; with 0.7098 in the XOM/XTO ratio), the first thing that came to mind under the new administration was risks in antitrust issues. The Obama administration was believed to be, and is still believed to be somewhat, much more stringent when it comes to approving mergers and acquisitions. But that appears to be an issue which has come and gone. Hitting the tape this afternoon is that the merger has received the necessary approvals.

BJ Services Company (NYSE: BJS) and the pending acquisition by Baker Hughes Inc. (NYSE: BHI) has yet to face approval as the companies this week announced “The DOJ has raised issues with regard to the overlap between the stimulation/sand control businesses of Baker Hughes and BJ Services in the U.S. Gulf of Mexico.”

As far as what Exxon Mobil said in its filing:

The applicable waiting period provided under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the pending merger by which XTO Energy Inc. will become a wholly-owned subsidiary of Exxon Mobil Corporation, expired on March 15, 2010, without the issuance of a second request. The Dutch Competition Authority provided a regulatory clearance of the pending merger on March 9, 2010. Closing of the transaction remains subject to approval by the shareholders of XTO Energy and the satisfaction (or, to the extent permitted by applicable law, waiver) of the other conditions provided in the merger agreement among the parties.

We have gone as far as predicting that Exxon Mobil would hike its dividend in 2010, but the merger here may get in the way of that notion if you consider how much stock it has repiurchased.

The acquisition by Schlumberger Ltd. (NYSE: SLB) of Smith International Inc. (NYSE: SII) is the newest of the three mergers and has yet to hear any formal decisions. Still, it seems that the energy patch is ripe for a new wave of M&A.

It seemed that during the private equity boom that mergers only brought on more mergers. This is true regardless of private equity. The notion that this expiration period has passed is a strong signal that cross mergers between oil and gas for larger economies of scale are going to be approved. If Exxon Mobil, the #1 by far on our 24/7 Wall St. Real-Time 500 by market cap, can get approval to buy a large gas producer then any other major domestic fully integrated or exploration & production player can too.

JON C. OGG

Filed under: Mergers and Buy Outs, Oil & Gas, Regulation Tagged: BHI, BJS, SII, SLB, XOM, XTO

Media Digest 2/22/2010 Reuters, WSJ, NYTimes, FT, Bloomberg

247wallst — Mon, 22 Feb 2010 08:46:58 +0000

Reuters: Obama plans to pressure health insurance prices as part of new reforms.

Reuters: A Toyota (TM) memo shows the company worked to keep the costs of one of its recalls to $100 million by convincing regulators to limit a safety inquiry.

Reuters: Greece said broader Eurozone rules for national finances are needed.

Reuters: Five former Treasury Secretaries backed the Volcker rule.Reuters: Schlumberger (SLB) bought Smith International (SII).

WSJ: Geithner’s political problems have hurt his authority.

WSJ: Many European nations may have used complex financial instruments to hide their debts.

WSJ: Investigators are closer to catching the Google (GOOG) China hackers.

WSJ: Pressure has grown to take GSK’s (GSK) Avandia off the market.

WSJ: The success of US athletes could help NBC (GE) cut into an expected $250 million loss.

NYT: China set new rules to lessen the risks of lending.

NYT: The next big battle ground for chip companies is smartphones.

NYT: Networks are worried about Apple’s (AAPL) plan to offer $.99 TV shows.

NYT: Texting has passed instant messaging as the preferred way to communicate via cellphone.

FT: The head of RBS (RBS) will get no bonus for last year.

FT: China now take more oil from Saudi Arabia than the US does.

Bloomberg: Derivatives show the worst is still to come for Greece’s finances.

Douglas A. McIntyre

Filed under: Press Digest Tagged: AAPL, GE, GOOG, GSK, RBS, SII, SLB, TM

A Flood Of Energy M&A: Schlumberger Buys Smith For $11 Billon

247wallst — Sun, 21 Feb 2010 18:43:02 +0000

The acquisition by Schlumberger Ltd. (SLB) of competitor Smith International Inc. (SII) for $11 billion could be another sign that mergers and acquisitions in the energy sector will pick up in 2010. This is the second big deal in the oilfield services sector, following last August’s announcement by Baker Hughes Inc. (BHI) that it would buy smaller rival BJ Services (BJS) for $5.5 billion.

Under the terms of the agreement, Smith shareholders will receive 0.6966 shares of Schlumberger in exchange for each Smith share. Based upon the closing stock prices for both companies on February 18, 2010, the agreement places a value of $45.84 per Smith share, representing a 37.5% premium. Upon closing, and reflecting the issuance of new Schlumberger shares, Smith stockholders collectively will own about 12.8% of Schlumberger’s outstanding shares of common stock.

Schlumberger expects to realize incremental pretax synergies—after integration costs—of aabout $160 million in 2011 and about $320 million in 2012. Schlumberger expects the combination to be accretive to earnings per share in 2012.

Exxon Mobil Corp.’s (XOM) proposed buyout of XTO Energy (XTO) for about $40 billion provides another example of M&A activity in the energy industry. Are there other deals lurking that will change the shape of the industry in the coming year?

Some rumors have surfaced that could prove out or could just be a waste of ink and pixels. What follows are some of the better possibilities.

Conoco Phillips (COP) might be the best bet among the big oil companies to forge a deal. Possible partners include Anadarko Petroleum (APC), Apache (APA), Devon Energy (DVN), and Marathon Oil (MRO). The three primarily exploration and production companies may be too rich for ConocoPhillips, but Marathon, with its large holdings of refineries, may be a decent fit with the fifth-largest refiner in the world.

Refining in the US is a nasty business right, with non-existent margins and low capacity utilization. US demand for refined fuels was dampened during the price run-up of 2008, and has never really come back. But if ConocoPhillips and Marathon could either spin-off or sell outright their combined refining operations, the more streamlined company could be a solid player in E&P going forward.

The most active areas for exploration and development in the US these days are the unconventional gas plays, particularly the shale deposits such as the Marcellus Shale in the Appalachians, the Bossier Shale in Texas and Louisiana, and the Eagle Ford Shale in south Texas.

Thanks to horizontal drilling techniques, shale gas flows quickly hit peak flows. Conventional gas wells ramp to peak flows much more slowly. St. Mary Land & Exploration (SM) drilled a vertical well in the Haynesville Shale play that produced an initial flow of 1.9 million cubic feet per day. Goodrich Petroleum (GDP) completed a horizontal well in the Haynesville that flowed at an initial rate of 12.2 million cubic feet per day. This kind of production is what makes shale gas plays so attractive.

One company that has made a substantial number of deals with its natural gas deposits is Chesapeake Energy (CHK). The company has raised about $11 billion in the past couple of years either through sales or partner agreements. One good possibility for another Chesapeake partnership is St. Mary, which holds leases and options on 225,000 net acres in Eagle Ford and a joint venture with Anadarko that includes another 66,000 acres.

Another possibility for Chesapeake is Pioneer Natural Resources Inc. (PXD), which recently announced that it is seeking bids for a partner to develop its holdings in the Eagle Ford play. Chesapeake has ceded first rights to a partnership in Eagle Ford to France’s Total SA (TOT) as part of an earlier partnership agreement. Pioneer holds 310,000 gross acres in the Eagle Ford play. The company holds proved reserves of 899 million barrels of oil equivalent, 98% of which is in the US.

Colorado-based Delta Petroleum (DPTR) has had its ups and downs in the past year, and has already announced that it is seeking “strategic alternatives”, including selling the company. The company’s market cap is around $400 million and it holds long-term debt as of September 30, 2009, of about $567 million. Cash flow from operations was negative in the third quarter of 2009, and the company had just $5 million in cash. Though not a shale play, Delta holds leases in Colorado’s gas-rich Piceance Basin.

Goodrich Petroleum with a market cap near $800 million and substantial acreage in the Haynesville and Eagle Ford plays also presents an opportunity for acquisition. The company’s proved reserves at the end of 2009 totaled about 421 billion cubic feet equivalent, 99% of which is natural gas.

A larger company that gets some attention in M&A chatter is Petrohawk Energy Corp. (HK). This is a larger deal, though, because Petrohawk has a market cap near $7 billion. The company is all over the Haynesville Shale and holds leases on some 225,000 acres in Eagle Ford.

Finally, Range Resources Corp. (RRC), with a market cap of about $8.5 billion, is heavily invested in the Marcellus and Barnett shale plays. But with a forward P/E ratio of over 60, the company may just be too rich for a potential buyer. But it’s not impossible to envision a joint venture or two with a company like Devon, which expects to recover 11 billion cubic feet equivalent per well in the core of the Cana Woodford shale play in Oklahoma.

The action in the energy business these days is virtually all in the natural gas shale plays. Exxon’s acquisition of XTO started the charge, and further consolidation is almost certain.

Paul Ausick

Filed under: Mergers and Buy Outs, Oil & Gas Tagged: APC, BHI, BJS, CHK, COP, DPTR, DVN, GDP, HK, MRO, PXD, RRC, SII, SLB, SM, TOT, XOM, XTO

Underwriting Syndicate Bonanza Continues (FTNT, AWK, BZ, LFT, SII)

247wallst — Wed, 18 Nov 2009 15:01:34 +0000

This morning we have a syndicate bonanza with a very solid IPO pricing and many secondary offerings getting priced. Fortinet, Inc. (NASDAQ: FTNT) priced 12.5 million shares in IPO at $12.50, above the $9.00 to $11.00 range. There are also many secondary offerings: American Water Works (NYSE: AWK) 37.35 million shares priced at $21.63; Boise Inc. (NYSE: BZ) 17 million shares priced at $4.85; Longtop Financial Technologies Limited (NYSE: LFT) 3.7 million shares priced at $31.25; Smith International Inc. (NYSE: SII) priced 28 million shares priced at $26.50.

We have detailed information on the size, use of funds, underwriters, and performance on each below.

At Fortinet (NASDAQ: FTNT) and the priced 12.5 million shares in IPO at $12.50, the deal breakdown is as follows for the $156 million offering: 5,781,683 shares are being sold by the company and 6,718,317 shares are being offering by selling stockholders. Morgan Stanley, J.P. Morgan, and Deutsche Bank are joint book-runners; Robert W. Baird, RBC Capital Markets, ThinkEquity, and JMP Securities, and Signal Hill Capital Group LLC are co-managers. In addition, Fortinet has granted the underwriters a 30-day option to purchase up to an additional 1,875,000 shares of common stock to cover over-allotments. Fortinet is in the field of network security and unified threat management solutions, and it priced above the $9 to $11 indicated range.

American Water Works Company, Inc. (NYSE: AWK), the largest water utility in the U.S., priced a 37.35 million shares at $21.63 per share after a closing bell price of $21.63 yesterday for a sale of close to $800 million. This stake is entirely from RWE AG, the former parent and majority/largest holder, so none of the $784 million in gross proceeds go to American Water itself. BofA Merrill Lynch, Credit Suisse, and Morgan Stanley are joint book-runners. Shares are up 0.3% at $21.71 after a $21.63 close yesterday.

Boise Inc. (NYSE: BZ) 17 million shares priced at $4.85, and all shares here are also being sold by shareholders and insiders in the $82+ million raise. Goldman Sachs was the sole book-runner. Boise Cascade Holdings, L.L.C. (and trusts affiliated with Jason Weiss) will now ‘only’ hold about 25% of Boise’s common stock after the offering. Shares are down 3.3% at $4.92 after a $5.09 close yesterday.

Longtop Financial Technologies Limited (NYSE: LFT) is actually trading way up this morning after it priced 3.7 million shares (ADS’s) at $31.25 per share, for more than $115 million raised. Longtop is into software development and solutions which target the financial services industry in China. The use of the net proceeds of the offering are earmarked for potential acquisitions and for general corporate purposes. Deutsche Bank and Morgan Stanley were the joint book-runners.

Smith International Inc. (NYSE: SII) priced 28 million shares priced at $26.50 in a $730 million approximate raise. Oddly enough, Citigroup just raised the rating on Smith International. The net proceeds from the offering will be used for debt repayment, general corporate purposes, and funding of potential acquisitions or investments. J.P. Morgan Securities Inc. is the book-running manager for the deal. Shares are actually up 4% at $27.97.

We are seeing a whole new slate of S-3 secondary filings and still seeing plenty of S-1 IPO filings at the SEC each day. If the market holds up, there will be many more days where the stock market has to absorb the $1.86 billion absorbed by the market this morning in new shares on the market.

You can join our open email distribution list to hear more news on IPOs, secondary offerings, key analyst calls, top day trader alerts, mergers and acquisitions, Buffett and other investment gurus, private equity, and more.

JON C. OGG
November 18, 2009

Posted in ADR, IPOs, Secondary Offering Tagged: AWK, BZ, FTNT, LFT, SII

Top Analyst Downgrades (AIG, ALL, BBY, CLX, ERTS, ITT, NWS, SII, TYX, VIP)

247wallst — Fri, 11 Sep 2009 12:06:55 +0000

These are this Friday morning’s top analyst downgrades and cautious research calls from Wall Street:

American International Group (NYSE: AIG) Cut to Underperform at Wells Fargo.
Allstate (NYSE:ALL) Cut to Sell at Goldman Sachs.
Best Buy (NYSE: BBY) Cut to Perform at Oppenheimer.
Clorox (NYSE: CLX) Cut to Neutral at Goldman Sachs.
Electronic Arts (NASDAQ: ERTS) Cut to Neutral at BofA/Merrill Lynch.
ITT Corp. (NYSE: ITT) Cut to Equalweight at Barclays.
News Corp. (NYSE: NWS) Cut to Underperform at Cowen.
Smith International (NYSE:SII) Cut to Neutral at Goldman Sachs.
Tyco (NYSE: TYC) Cut to Equalweight at Barclays.
VimpelCom (NYSE: VIP) Cut To Hold at RBS.

JON C. OGG

Posted in Analyst Calls Tagged: AIG, ALL, BBY, CLX, ERTS, ITT, NWS, SII, TYX, VIP

Trouble Continues in Oilfield Services (SII, HAL, WFT, SLB)

247wallst — Mon, 27 Apr 2009 13:38:34 +0000

Well drilling and completion services just aren’t paying off for anyone this reporting season. Smith International Inc. (NYSE:SII) reported diluted EPS of $0.44 on revenues $2.41 billion. After deleting a restructuring charge of $34.8 million, EPS reaches $0.52. First quarter 2008 EPS was $0.87 on $2.37 billion in revenue.

Like its brethren oilfield services providers Halliburton Company (NYSE:HAL), Weatherford International Ltd. (NYSE:WFT), and Schlumberger Ltd. (NYSE:SLB), lowered targets didn’t rescue Smith.

In the last quarter of 2008, Smith’s EPS reached $0.91 on revenues of $3.06 billion. For the 2009 first quarter, analysts had been expecting EPS of $0.57 and revenues of $2.56 billion. Not very aggressive, but still out of reach.

Smith’s shares haven’t traded yet in pre-market. The company’s closing price on Friday was $27.77, and its 52-week range is $18.23-$88.40. It could be a long time before that top is reached again.

Paul Ausick
April 27, 2009

Posted in Earnings, Oil & Gas Tagged: HAL, SII, SLB, WFT

Smith International Sinks on (SII, SLB, HAL, BHI, WFT)

247wallst — Fri, 30 Jan 2009 17:43:12 +0000

Smith International, Inc. (NYSE:SII) led the parade of oil field services stocks downhill yesterday. Smith opened Thursday more than $1.50/share lower than Wednesday’s close and finished the day even lower. Schlumberger Limited (NYSE:SLB), Baker Hughes Inc. (NYSE:BHI), Halliburton Company (NYSE:HAL), and Weatherford International Ltd. (NYSE:WFT) all followed suit.

Smith reported soft fourth quarter and full year results yesterday. Non-GAAP EPS amounted to $1.00 on income from continuing operations of $218.6 million and revenue of $3.06 billion. Analysts were expecting EPS of $1.02 on revenue of $3.04 billion.

The company’s CFO noted that Smith has "one of the best cash flow downturn profiles in our industry. Over the coming quarters, we would expect to generate significant free cash flow as the business contracts…." She didn’t explain what that means, exactly, but one could interpret it to mean that as economic conditions worsen, Smith will perform better. Sure, we’ll buy that.

Paul Ausick

Posted in Alternative Energy Tagged: BHI, HAL, SII, SLB, WFT

Top Pre-Market Analyst Downgrades (AINV, BHI, CNI, RDEN, KSU, PALM, RL, RRGB, SII, TER)

247wallst — Tue, 20 Jan 2009 07:51:57 +0000

These are some of the top pre-market analyst downgrades on Wall Street this Tuesday morning:

Apollo Investment (AINV) Cut to Neutral at JPMorgan.
Baker Hughes (BHI) Cut to Underweight at Morgan Stanley.
Canadian National Railway (CNI) Cut to Neutral at Goldman Sachs.
Elizabeth Arden, Inc. (RDEN) Cut to Market Perform at Wachovia.
Kansas City Southern (KSU) Cut to Neutral at JPMorgan.
Palm (PALM) Cut to Neutral at JPMorgan.
Polo Ralph Lauren (RL) Cut to Sell at Goldman Sachs.
Red Robin Gourmet (RRGB) Cut to Equal Weight at Morgan Stanley.
Smith International (SII) Cut to Equal Weight at Morgan Stanley.
Teradyne (TER) Cut to Perform at Oppenheimer.

Jon C. Ogg
January 20, 2009

Posted in Analyst Calls Tagged: AINV, BHI, CNI, KSU, PALM, RDEN, RL, RRGB, SII, TER

Analysts Downgrading Oil Patch (NOV, PDE, REP, SII, STO, SU, RIG)

247wallst — Wed, 14 Jan 2009 07:56:20 +0000

It is probably no huge shock that downgrades are coming more than upgrades now that oil has come down so much. Too bad these were not the calls several months ago. Here are some of the downgrades this Wednesday in the oil patch:

National Oilwell Varco (NYSE: NOV) Cut to Underweight at JPMorgan.
Pride International (NYSE: PDE) Cut to Underweight at JPMorgan.
Repsol SA (NYSE: REP) Cut to Neutral at UBS.
Smith International (NYSE: SII) Cut to Neutral at JPMorgan.
Statoil (NYSE: STO) Cut to Neutral at UBS.
Suncor Energy (NYSE: SU) Cut to Sector Perform at RBC.
Transocean (NYSE: RIG) Cut to Neutral at JPMorgan.

Jon C. Ogg
January 14, 2009

Posted in Analyst Calls, Oil & Gas Tagged: NOV, PDE, REP, RIG, SII, STO, SU

Smith International, Good Enough (SII)

247wallst — Tue, 28 Oct 2008 08:18:13 +0000

Oil field services company Smith International (NYSE:SII) reported third quarter earnings before the market opened this morning. EPS reached $1.00 on revenues of $2.85 billion. Analysts were expecting EPS of $0.97 and revenues of $2.71 billion. A pro forma calculation accounting for the acquisition of W-H Energy Services, which was completed in late August, increased revenues to $3.07 billion.

Excluding the effects of the W-H acquisition, Smith’s revenues grew 8%sequentially and 21% year-over-year. The company attributed the growthto more drilling in Canada and increased investment in infrastructurefor unconventional oil and gas projects in the US. Smith also increasedits full-year EPS guidance by a nickel, to $3.83-$3.88.

The company’s chairman and CEO pointed out that oil at $60/b is morethan six times higher than its low price in 1998. He also highlightedan obvious point: "There’s plenty of profit potential at today’sindustry price structure." Somebody had to say it.

This closed at $26.49 and is up roughly $1.00 right before the open. Its 52-week trading range is $26.23 to $88.40.

Paul Ausick
October 28, 2008

Posted in Earnings, Oil & Gas Tagged: SII