Cameron-Natco Merger: Natco Shareholders Gain the Most in the Short-Term

Includes: CAM, NTG

Cameron Enterprises (NYSE:CAM) and Natco Group (NYSE:NTG) boards reportedly have approved a merger proposal of 1.185 shares of Cameron common stock in return for each of Natco's approximately 20.3 million shares outstanding, giving Natco shareholders about 10% ownership of Cameron's outstanding shares.

The deal seems to be skewed in favour of Natco's shareholders based on the stock performance today and order backlog and net income for the recent periods.

FY08 CAM NTG Combined
Revenue 5849 657 6506
% of total 10%
Net Income 594 35 629
% of total 6%
Backlog 5607 280 5887
% of total 5%
Click to enlarge

Source: Gridstone Research

The merger ratio seems to be based on revenues and not income or order backlog as indicated by % of total.

For CAM, this merger seems to bring comfort in size and diversification of revenues in a scenario of falling customer spend in the Oil and gas sector.

Overall, the merger ratio seems to be skewed in favour of NTG shareholders in line with conventional wisdom - acquired company shareholders benefit more than shareholders of a acquiring company. The stock price movements yesterday seem to reinforce this.

Disclosures: No holdings in either CAM or NTG.