Adding to Position on National Oilwell Varco - Grant Prideco Merger

National Oilwell Varco (NOV) is buying Grand Prideco (GRP) in a cash/stock deal that should be accredative to earnings. I've never held Grant Prideco in the fund but have looked at in the past and found it to be a solid company; so I like this deal which puts a 22% premium on Friday's closing price for GRP. National Oilwell Varco, as discussed last week, broke out technically and this news has put pressure on the stock, with it down 7% in early trading, conveniently taking it right down to the 50 day moving average (mid/upper $71s). Thank you market; I will be adding here. While this deal will add some pressure to the stock near term, in the long run it looks like a good acquisition and makes National Oilwell Varco even more of a powerhouse than it already was.

I've pushed up my exposure to National Oilwell Varco from 2.1% of the fund to 2.5% - buying some shares on this pullback, and when National Oilwell Varco resumes an uptrend I will continue adding. I am taking my own advice, as NOV was one of my "12 New Stocks to Buy on a Pullback". This type of news could stall the stock for a while however. We shall see.

I would not be surprised to see more deals of this type creating some nice powerhouses in the oil service space.

• Oil and gas service company National Oilwell Varco Inc (NYSE:NOV) said on Monday it would buy peer Grant Prideco Inc (NYSE:GRP) for about $7.37 billion in the latest link-up in a sector that has been bolstered by record oil prices.
• The combination would create a leader in the production and maintenance of pipes used in oil and gas wells, a business expected to post strong growth on the back of oil prices that have hovered near $90 per barrel.
• "You have to say where Grant Prideco stock has traded, it's a good price," said Natixis Bleichroeder analyst Roger Read, who has a $72 target on the stock. "Varco is getting a good deal."
• Stock in Grant Prideco, which makes drill, pipe and other tubular products for oil and gas wells, has fallen about 20 percent from its all-time high of $59.99 reached in June.
• The deal, which has been unanimously approved by both companies' board of directors, will give National Oilwell Varco 86 percent of the combined company. It will have an estimated market value of $32 billion.
• The purchase is expected to add to earnings and cash flow in 2008, assuming a full-year rate of cost savings of $40 million, said National Oilwell Varco, which will finance the purchase with cash on hand and debt.

Disclosure: Long National Oilwell Varco in fund and in personal account

Comments

[CrossProfit_:]

"which will finance the purchase with cash on hand and debt"

Being acquired by National Oilwell Varco (NOV) @$23.50 cash and 0.4498 share. Cash and shares not cash and debt. Please check your source.

The 'share' part is apparently contributing to the pullback.

CrossProfit

2007 Dec 19 06:16 AM

[TraderMark:]

Thanks, made an error when typing too fast :)
Much like the RIG/GSF situation NOV could be a victim of shorting against company buying and long on the company being acquired. So not sure if it will run now - it most likely will be range bound until everything is approved and complete, but I (really) like the move long term. Thanks for the correction, sometimes fingers go faster than brain.

2007 Dec 19 10:28 AM