@ Balance Purchase Should Bode Well for Smith International

Feb.16.10 | About: Smith International (SII)

Smith International Inc. (SII) is planning to acquire @ Balance from Shell Technology Ventures Fund 1 B.V.

Based in The Netherlands, @ Balance is a leading supplier of Automated Pressure DrillingTM services and the exclusive provider of the Dynamic Annular Pressure ControlTM system, an award winning product for real-time pressure drilling.

@ Balance is primarily focused on international deepwater markets, which are aligned with Smith’s future growth area. Smith has been working with the company for the last few years and first acquired a minority interest in 2007. In 2009, Smith increased its stake in the company to 35%.

Though the company has not provided any financial metrics regarding the deal, it states that the acquisition is for the remaining 65%, which is expected to be completed in this quarter only.

Through the combination of Smith’s rotating control devices, M-I SWACO’s − a joint venture with Schlumberger (NYSE:SLB) − Super Auto Chokes and @ Balance’s technology, the customers will enjoy the benefit of a complete managed pressure drilling package, the company said.

Smith’s product and service mix is well positioned to benefit from a recovery in the North American drilling market and the expanding deep water rig fleet. We particularly like the stock for its high end product lines, strong engineering and technical services and its strong position in key international markets. This acquisition appears to have gained market share in these key areas and provide top-quartile drilling performance to its customers.