- Cameron takeover at $15 billion is industry's second-biggest
- FMC and Dril-Quip could be next up for consolidation
Schlumberger Ltd.’s takeover of Cameron International Corp. could inspire more dealmaking.
The world’s biggest oilfield contractor agreed on Wednesday to buy pump-and-valve maker Cameron for about $66.36 a share in cash and stock. It’s the second-largest oil and gas services deal on record after No. 2 Halliburton Co. agreed to buy No. 3 Baker Hughes Inc. for more than $35 billion in November.
The $15 billion purchase price for Cameron is about 14 times what the company earned before interest, taxes, depreciation and amortization in the last year. Cameron hasn’t commanded such a rich valuation since February 2014, and shareholders are getting a higher multiple than most big oil and gas takeover targets have fetched since crude began its slide in June of last year.
After accounting for one-time charges over the last year, the Ebitda multiple is closer to 8.9 times, according to Andrew Cosgrove of Bloomberg Intelligence.
It’s an appealing exit at a time when analysts are raising the prospect of oil selling for as low as $30 a barrel. Other would-be energy-equipment targets -- such as FMC Technologies Inc. and Dril-Quip Inc. -- could take notice.
“FMC and Dril-Quip are direct competitors to Cameron so if one goes, it’s logical that the others are in play,” said John Groton, director of equity research at Cameron shareholder Thrivent Financial for Lutherans. Thrivent also holds Schlumberger shares among the $96 billion in assets it oversees. “You can count on one hand the number of legitimate, decent-size company targets.”
On Wednesday, FMC rose 7 percent after the news of Schlumberger’s bid for Cameron, while Dril-Quip jumped 7.8 percent. They both climbed even higher on Thursday.
Like Cameron, both companies make equipment used to process oil extracted from deep in the ocean and could appeal to buyers ranging from National Oilwell Varco Inc. to Siemens AG or General Electric Co. GE, for one, will have a lot more cash to spend on takeovers after divesting the bulk of its finance businesses.
“Now would be a time for GE to be active,” Groton of Thrivent said. “Because they have non-energy businesses, that stock has held together much better than their potential targets. So if I were them, I would be sniffing.”
Oilfield service and equipment companies were the first to feel the pain from a crude market crash that began in June 2014. As crude prices plunged by more than half, explorers were forced to slash more than $100 billion in spending this year, leading to more than 150,000 in global energy industry layoffs, mostly by service companies.
As oil producers wrangle with shrinking budgets, the equipment providers that can offer complete and lower-cost bundles of services and technology will win out. Combining is one way to do that. It’s already been a busy period for energy-related deals: There have been $278 billion in industry takeovers so far this year, on track to surpass last year’s record of $408 billion, according to data compiled by Bloomberg.
Other possible targets could include Norway’s Aker Solutions ASA or Weatherford International Plc, which climbed 3.3 percent on Wednesday. Pacific Drilling SA, an offshore oil-rig contractor controlled by Israeli billionaire Idan Ofer, attracted takeover interest earlier this year as the slump in oil prices eroded its market value, people familiar with the matter said in June.
Schlumberger’s offer is still a far cry from the lofty valuations that Dresser-Rand Group Inc. and Lufkin Industries Inc. obtained in their takeovers. There could still be room for a higher offer, should a counterbidder want to step forward. Siemens and General Electric have been named in the past by analysts as potential suitors for Cameron.
Other potential buyers probably won’t be as good of a fit though, said Stephen Gengaro of Sterne Agee CRT. Cameron and Schlumberger already had a subsea-equipment joint venture together.
The next bid for an energy-equipment company is likely to be for one of Cameron’s peers.