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Commentary

Schlumberger’s Acquisition of Cameron Will Strengthen Its Wide Moat

Though the valuation seems a bit rich, we otherwise view the acquisition favorably, says Morningstar’s Allen Good.

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On Wednesday,  Schlumberger (SLB) announced it would acquire Cameron International for $66.36 per share, consisting of 0.716 Schlumberger share and $14.44 per share in cash. The offer represents a 56% premium to Cameron's latest closing share price and a 21% premium to our $55 fair value estimate. Schlumberger anticipates the deal to be accretive to earnings in the first year after closing and expects to realize $300 million and $600 million in synergies in the first and second years.

Though the valuation seems a bit rich relative to our fair value estimate for Cameron, we otherwise view the acquisition favorably. Schlumberger already was partnered with Cameron in the OneSubsea joint venture, which combined the former's large customer base and reservoir management expertise with the latter's subsea experience and manufacturing capability. Peers later replicated this type of partnership, but we viewed OneSubsea as best of the breed. Now, Schlumberger is in effect adding Cameron's surface operations, which primarily focus on North American onshore activity, to its reservoir management expertise, which should open new avenues of growth. It will also leave Schlumberger better equipped to compete in what is likely to be a sustained low oil price environment with ongoing pressure on service providers.

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Allen Good does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.