National Oilwell Varco, Grant Prideco in $7.5B Merger

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Includes: GRP RETIRED, NOV
by: Jonathan Liss

Oil drilling and services companies National Oilwell Varco (NYSE:NOV) and Grant Prideco (GRP RETIRED) jointly announced early Monday a merger through which National Oilwell Varco will acquire all of Grant Prideco for $23.20 in cash and 0.4498 of its own shares per GRP share. The deal values GRP at $58 per share, a 22% premium to Friday’s closing price of $47.46. The deal was unanimously approved by both companies’ boards. According to the press release, the transaction is "expected to be accretive to earnings and cash flow per share for National Oilwell Varco in 2008," assuming full-year cost savings of $40 million.

Analysts praised the merger. According to Susquehanna Financial’s Brian Niemiec, “The merger is a solid move for National Oilwell Varco, as it is generally considered one of the strongest players in the oil machinery sector," adding it "should greatly improve its footprint in the sector." Natixis Bleichroeder analyst Roger Read added, “National Oilwell gets one of the best drill-bit businesses and a drill-pipe business with a large market share." Tudor, Pickering, Holt & Co. analyst Dan Pickering believes the merger will boost National Oilwell’s EPS by roughly 5% in 2008.

The combined company will have a market cap of $32 billion. National Oilwell says it has already secured bank commitments for the bulk of the cash portion of the merger; the remainder will be paid for with cash on hand. GRP shares closed up 13.6%; NOV shares were down 8.6%. It has gained 131% YTD.

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