NEW YORK/SAN FRANCISCO (Reuters) - Oilfield services leader Schlumberger Ltd aims to gain share in shale gas drilling with its purchase of rival Smith International Inc, and expects few antitrust hurdles.
Smith shares were up 8 percent to $40.70 in Monday afternoon trade, a day after the deal was announced, while Schlumberger fell 4.3 percent to $61.13.
On a conference call with analysts on Monday, Schlumberger Chief Executive Andrew Gould said he had been considering the deal "for some time," and the timing now was right, even though he acknowledged paying "a significant premium."
The market reacted accordingly, shaving about $800 million off the original $11.3 billion value as of midday on Monday.
The deal, subject to shareholder and regulatory approval, originally valued Smith stock at a 37.5 percent premium over Thursday's closing price, according to a joint statement by the companies on Sunday. They expect the deal to close later this year.
Under the terms, Smith shareholders will receive 0.6966 shares of Schlumberger for each of theirs.
Schlumberger expects the acquisition to add to earnings per share in 2012, after realizing pretax savings after costs of about $160 million in 2011 and about $320 million in 2012.
Schlumberger, which operates in about 80 countries, has said it wants Smith's drillbit technology to offer customers the option to drill deeper and cheaper for fossil fuels.
"No doubt, in the long-term, shale gas is going to be one of the big new energy sources in the U.S. and overseas," Gould said, "and the capacity to serve that market in North America is of great interest to me."
Asked if he envisaged any regulatory or antitrust issues with the Smith acquisition, Gould said he did not believe they would cause any "change in the landscape."
But analysts say the deal is likely to face close scrutiny by antitrust enforcers given the attention paid to other oilfield services mergers, such as Cameron International Corp's NATCO purchase and Baker Hughes Inc's $6 billion deal for BJ Services.
One analyst anticipated a potential sale of Smith's PathFinder business, which logs real-time data while drilling.
Analysts at Tudor, Pickering Holt expect many of the assets acquired by Smith when it bought W-H Energy in mid-2008 will have to be sold to satisfy antitrust regulators.
"There is some overlap areas where they would get a close look, but in large part it's a complementary deal," said Bruce McDonald, a former Department of Justice (DOJ) deputy assistant attorney general who is now with law firm Jones Day.
"Both Schlumberger and Smith are very strong in drilling technology, which I would think is the overlap area where the DOJ would first look."
Smith CEO John Yearwood will be familiar with the issues surrounding M-I SWACO, having been a Schlumberger management committee representative for the joint venture.
Both he and Smith Chief Financial Officer William Restrepo worked at Schlumberger for two decades, with Yearwood's final two years spent as senior advisor to Gould.
(Reporting by Ernest Scheyder and Steve James in New York, and Braden Reddall in San Francisco; Additional reporting by Diane Bartz in Washington; Editing by Lisa Von Ahn and Tim Dobbyn)
