Shareholders of Smith International Inc. (SII) voted in favor of the proposed merger between the company and Schlumberger Limited (SLB). The merger is expected to close on August 27. Until then, both the companies will continue to operate independently.
 
In February, Schlumberger announced the acquisition of its lesser rival Smith for approximately $11 billion in an all-stock deal. Under the terms of the agreement, Smith shareholders will receive 0.6966 Schlumberger share for each share of Smith.
 
Given that both companies cover the same geographical regions, Smith is a good strategic fit for Schlumberger.
 
With signs of recovery in the economy and an uptrend in oil prices, industry giants want to acquire smaller rivals to increase their business. While the Schlumberger-Smith deal is in the oilfield space, the completed ExxonMobil (XOM)-XTO deal was in the integrated space.
 
Following an increase in demand for global energy, producers require drilling equipment and advanced technology to cope with drilling in increasingly difficult environments. In addition to Schlumberger’s product lines, customers of the merged company will be able to drill more economically in a challenging environment through Smith’s drilling fluids, drill bits and accelerated technology development.
 
Technology, especially in well services, contributed a fair portion to Schlumberger’s overall performance in the second quarter for faster drilling capability. We expect further development in this space following the closure of the Smith deal as new technology carries higher margins.
 
Currently, we maintain our Neutral recommendation for both Schlumberger and Smith with the Zacks #3 Rank (Hold).
 
SMITH INTL (SII): Free Stock Analysis Report
 
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
 
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
 
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