Schlumberger Ltd. (NYSE: SLB) announced on Wednesday that it will be acquiring Cameron International Corp. (NYSE: CAM) in a cash and stock deal. The agreement was unanimously approved by both boards of directors. As a result, a key independent research firm decided to throw its hat in the ring and conjecture on where Schlumberger is headed from here.
First, under the terms of the agreement, Cameron shareholders will receive 0.716 shares of Schlumberger common stock and a cash payment of $14.44 in exchange for each Cameron share, valuing the total offering at $12.7 billion. Upon closing, Cameron shareholders will own approximately 10% of Schlumberger’s outstanding shares of common stock.
Argus has a Buy rating for Schlumberger with a $112 price target, implying an upside of nearly 56% from current prices. This rating and target are based on strong synergies from the recent deal with Cameron International.
The independent research firm gave its investment thesis as:
We believe that Schlumberger remains well positioned among oilfield service companies regardless of the extent of the recovery in energy prices. The company has proactively cut costs and continues to offer differentiated products and services that provide value to customers. These efforts have helped SLB to minimize the negative margin impact of lower E&P spending in the current cycle relative to past industry down-cycles. In addition, Schlumberger’s strong balance sheet and commitment to dividend increases and share buybacks should allow it to outperform peers.
At the same time, the company also is taking advantage of the sector downturn through its recently announced plan to acquire Cameron. Argus views the $14.6 billion deal favorably and expects it to be accretive to earnings within 12 months of the projected closing in the first quarter of 2015, mainly due to cost synergies. The firm also expects a more significant boost to earnings over the long term as Schlumberger integrates its leading subsurface technology with Cameron’s wellhead and equipment offerings.
In short, Schlumberger’s expertise in software and digital applications should complement Cameron’s experience with hardware and analog applications. Schlumberger hopes to leverage its capabilities in high-value instrumentation, software modeling and control and automation systems to create a fully integrated drilling and production system.
Shares of Schlumberger were up 2.5% to $71.84 Thursday morning. The stock has a consensus analyst price target of $100.97 and a 52-week trading range of $68.01 to $110.84.
Cameron shares were up 3.4%, at $61.98 in a 52-week range of $39.52 to $74.89. The consensus price target is $60.30.