Halliburton to Acquire Expro International?

UK-based oilfield service provider Expro International Group [EXR.L] appears officially “in play”. Candover Investments [CDI.L] and Goldman Sachs (GS) kicked things off last month with a £1.6bn (~ $3.2 billion) cash offer for the fast-growing provider of flow assurance equipment and wellsite services. The offer represents a 50%+ premium to Expro’s stock price prior to management’s indication that an offer had been made for the company.

But before the ink could dry on the news of the offer by Candover / GS, Halliburton (HAL) announced it was in talks to purchase the company as well, presumably at some premium to the price offered by Candover / GS. From what we glean, Halliburton is still kicking the tires and / or in the process of preparing its own bid.

Which suitor wins out could hold material implications for Expro customers. Why? Candover / GS would be a financial (i.e., presumably shorter-term) owner, while Halliburton would have more of a long-term strategic interest in the company.

To more fully understand why this is important, one has only to hearken back to Candover’s 2004 purchase of Vetco International from ABB Oil & Gas, an acquisition that included wellsite equipment maker Vetco Gray. While Candover, along with partner JP Morgan (JPM), turned a tidy profit in the three years in which it owned Vetco Gray (Vetco Gray was sold to GE in 2007 for almost $2 billion), EnergyPoint’s data suggest customers’ satisfaction with Vetco Gray’s performance fell meaningfully during the time the company was owned by Candover.

It’s not unreasonable to suggest history could repeat itself in the case of Expro. Candover / GS, in an effort to maximize cash flow, would seem more inclined to limit Expro investments to initiatives offering only the highest returns and the quickest paybacks. Such is the modus operandi of many financial buyers. The firm might even roll back investments and initiatives that current Expro management has in place to enhance operational performance -- initiatives we view as duly warranted.

In the end, while Candover / GS might spin more gold for themselves and their investors out of an acquisition of Expro, Halliburton seems better positioned to make Expro shine for customers.

Regardless of which suitor triumphs, the victor will inherit a fast-growing supplier with plenty of opportunities for improvement.

Disclosure: none

Comments

[Ferg:]

Some good points here and of course customers and revenue comes first as far as investment is concerned. However the romantic in me suggests that Candover would be the current Expro employees choice(all 4500 of them).

As we've seen over the years Halliburton has the knack of acquiring a company and then appear to systematically rip the soul from it. Recent example would be PSL.

Having dealt with both Vetco and Expro over the years, I'd suggest that, compared to Vetco, there is a stronger "backbone" in the current Expro setup and would hope that the current engineering initiatives would remain. Additionally, where Vetco are very strong in a niche part on the industry, I'd suggest Expro have much more breadth to their offering and therefore have engineered much more innovative products/services, such as the Ax-s project.

Albeit "shorter-term", I feel the Candover option would be better for the industry from a technology point of view - and for a personal point of view, I'd love to see what else this company can do - they're hardly a small company now, however still small fry compared to the likes of Halliburton - I'd like to think we all like to see the Davids get the best of the Goliaths.

Good luck Expro employees.

2008 Jun 03 05:25 AM