Schlumberger in talks to buy Smith Int'l: report

NEW YORK/SAN FRANCISCO (Reuters) - Schlumberger Ltd is in advanced talks to buy rival Smith International Inc, The Wall Street Journal said, in a move to expand the oilfield services leader's arsenal as the weakened sector starts to recover.

The report, citing people familiar with the talks, sent Smith shares up 13.6 percent on Friday, while shares of Schlumberger fell 3.5 percent.

With the deal, Schlumberger would grow its revenue to double that of Halliburton Co , the industry No. 2. Regulatory scrutiny would be likely.

The companies did not immediately respond to requests for comment.

Such a takeover would be a homecoming for Smith Chief Executive John Yearwood, who worked at Schlumberger for 26 years and between 2006 and 2008 was senior adviser to Schlumberger CEO Andrew Gould, who like Yearwood was educated in the UK.

Smith's new chief financial officer, William Restrepo, also spent two decades at Schlumberger.

A sale by the two executives to their former employer would be only the latest consolidation in oilfield services, a sector that saw its profits shrink as oil and natural gas companies cut spending on projects when the boom collapsed in 2008.

Baker Hughes Inc , the third-largest oilfield services company, is expected 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.

Outside the top four players, which are far better placed to compete in a world where oil and gas companies increasingly seek one-stop shopping for oil services, Smith looked the most in need of adding to its range of offerings.

Similarly sized FMC Technologies Inc and Cameron International Corp have both seen strong demand for their subsea products as deepwater drilling booms in places like Brazil.

Smith's market capitalization at Thursday's close was about $7.5 billion, and a typical premium of about 20 percent would put the price of a deal with Schlumberger near $9 billion.

ANTITRUST CONCERNS

Smith and Schlumberger operate a 60-40 joint venture, M-I SWACO, that sells drilling fluids to the oil and gas sector.

A bid for Smith would likely get a hard look from antitrust regulators, analysts said, and the companies likely would have to divest some assets, even if the strategic logic of a deal is sound.

"It makes a tremendous amount of sense," said Kurt Hallead at RBC Capital Markets. He said a deal would allow Schlumberger to compete in drillbits and give it total ownership of M-I Swaco. "Baker was filling an empty slot, and Schlumberger is doing that here with Smith."

But Joe Hill, and analyst with Tuder, Pickering Holt Energy Research in Houston, said the benefits for Schlumberger would be much smaller than those resulting from Baker's move.

"There's no such imperative for Schlumberger to do this. That's why it's a bit of a head-scratcher," he said.

Still, Schlumberger is not likely to face a rival suitor for Houston-based Smith, since few other companies would see a better fit for their business, Hill added.

Hallead said that to win regulatory approval, Schlumberger would likely have to sell Smith's Pathfinder business, which logs real-time data while drilling. National Oilwell Varco Inc or a private equity firm would be the most likely buyer, he said.

Smith shares rose 13.6 percent to $37.90 in afternoon trading on the New York Stock Exchange. Schlumberger, which also has NYSE-listed shares and has its corporate offices in Paris, Houston and The Hague, was off 3.5 percent at $63.50.

(Reporting by Matt Daily in New York and Braden Reddall in San Francisco; additional reporting by Sakthi Prasad in Bangalore; Editing by Gerald E. McCormick, Dave Zimmerman and John Wallace)

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