Houston Oil Services Companies Join Hands

Smith International is locking arms with fellow Houston-based oil field services company W-H Energy Services in the latest combination of a growing trend toward services consolidation.

Smith said Tuesday it is buying W-H in a cash and stock deal worth about $3.2 billion.
The move will combine Smith's engineering and products, including drill bits, drilling and completion fluid systems and well completion services, with W-H's expertise in directional drilling, or the ability to drill at an angle from a central point.

Standard & Poor's affirmed Smith's investment grade rating, saying the combination will move Smith into drilling abilities with favorable growth prospects.

The oil field services industry is ripe for consolidation as companies seek to team up and offer more one-stop shopping to better compete with conglomerates like Halliburton Co., Schlumberger and Baker Hughes.

Other deals in recent months include the $7.4 billion merger of National Oilwell Varco and Grant Prideco, announced in December, and Grey Wolf's $1.4 billion purchase of Basic Energy Services, announced in April.

The companies said Smith plans to pay $93.55 per share of W-H Energy, a 9 percent premium on Monday's closing price of $85.54. Smith would pay $56.10 per share in cash and issue 0.48 of its shares for each W-H Energy share.

Smith is expected to issue about 15.5 million new shares to W-H shareholders, who would own 7 percent of Smith when the deal closes in the third quarter, pending investor and regulatory approval.

Rock said the combination of Smith and W-H would "accelerate W-H's globalization" by giving its assets more exposure in fast-growing international markets, which account for two-thirds of Smith's revenues.
Ken White, W-H's chief executive, said his company has been the subject of takeover rumors for years as it competed with much larger oil field services companies.

He said W-H had been cautious about entering international markets, and "I do agree with him that there is very meaningful potential here."

In a note to investors, Simmons & Company International called the deal a win-win for both companies.

Smith will acquire a much-needed capability, making the company potentially "a more viable participant in growth associated with government-controlled oil companies in resource-rich countries," Simmons said.

Rock declined to tell analysts whether the deal contains provisions blocking other companies from bidding more for W-H Services or specifies a breakup fee in the event that it falls through.