Schlumberger able to shrug off many rejections by Cameron
A complicated courtship was shadowed by the slump in crude oil prices, according to documents filed recently with SEC
For months, Houston oil tool maker Cameron International turned down Schlumberger’s bids to take over the company, rejecting the offers as too low.
But as the dramatic collapse in oil prices and wild swings in the stock market darkened the outlook for the oil field services industry, the two companies edged closer to an agreement.
Schlumberger, the Paris- and Houston-based oil field services giant, was persistent, and Cameron began to doubt whether it would be able to meet its revenue and spending targets amid the tough business climate, according to federal filings detailing the conversations that led to the Aug. 26 merger announcement.
Schlumberger first expressed interest in Cameron in November 2014. The company indi- cated then that it was willing to make a “strategic equity investment” in Cameron not long after the two had teamed up on a joint venture called OneSubsea to develop technologies for boosting oil production from deep-water reservoirs, according to documents recently filed with the U.S. Securities and Exchange Commission.
Cameron’s board said it wasn’t interested, and Schlumberger dropped its pursuit.
In April, with both companies feeling the pinch of a collapse in oil prices and pressure from customers to offer deeper discounts, Schlumberger’s management again approached Cameron with an offer, arguing that Cameron could benefit from combining with its OneSubsea partner.
With the board’s approval, Schlumberger CEO Paal Kibsgaard sat down with Cameron’s then-CEO, Jack Moore, after a OneSubsea committee meeting and made his arguments for fusing the two companies. He didn’t say how much Schlumberger was willing to pay, but told Moore he’d be sending a letter soon outlining a formal offer. That proposal called
for acquiring Cameron for $68 per share in a 50-50 cash and stock split worth 24 percent more than Cameron’s market capitalization. Cameron’s board agreed that while it made sense to join forces with a larger, more diversified oil field services company amid a gloomy time in the industry, Schlumberger’s bid was too low to warrant pursuing the deal further.
Moore broke the news to Kibsgaard, who said Schlumberger would consider upping its offer if it could take a more thorough look at Cameron’s business.
Cameron’s board met again in May, and reasoned that no other company with Schlumberger’s financial heft and determination to buy could beat its offer. But the board still wanted to press for a higher price.
The desire for a better deal came at a tough time. The fresh plunge in oil prices over the summer made it difficult for Schlumberger to justify putting additional money on the table, Kibsgaard told Moore. He asked Moore to give him an idea of a value Cameron considered reasonable, but Moore declined.
Schlumberger sent another formal letter in August with the same offer, arguing that because of changes in both companies’ stock prices, the original proposal represented a higher premium than when the company made its initial bid in April.
Cameron’s board rejected the offer again. Schlumberger responded quickly, tweaking its proposal to increase the stock component from 50 percent to 80 percent per share, but Cameron said no.
Undeterred, Kibsgaard sent Moore a letter saying Schlumberger was still interested. The two CEOs met, and Moore suggested Cameron would be more amenable to a deal if Schlumberger raised its bid above $72 per share of Cameron common stock.
A day later, Schlumberger sent a new proposal that called for the company to pay 52 percent more for Cameron than its market capitalization. Under the revised bid, Cameron shareholders would own 10 percent of Schlumberger, an arrangement giving them greater say over the company’s operations.
Cameron’s board gathered to consider the deal on Aug. 19 and instructed management to move forward with the merger. It was a Wednesday. They planned to announce the deal publicly on Monday.
But one day after Cameron agreed to the proposal it had worked months to get, the U.S. stock markets took a nosedive, pulling down shares of both companies.
Schlumberger’s chief financial officer, Simon Ayat, met with his counterpart at Cameron, Charles Sledge, to tell him that the recent volatility had caused the company to rethink its terms.
Instead of offering to give Cameron shareholders $ 72.20 per share of Cameron common stock in a deal that was 20 percent cash and 80 percent shares, Schlumberger would be willing to fix the cash portion at $14.44 and set the stock portion at an exchange ratio based on its original offer. That worked out to 0.716 shares of Schlumberger common stock.
While the revised bid meant Schlumberger was still agreeing to buy Cameron at a significant premium, under the new terms, fluctuations in the stock market between the time the deal was announced and the time it closed could change the acquisition’s value for Cameron and its shareholders.
Cameron’s Sledge again met with Ayat to negotiate, but Ayat wouldn’t budge. This was Schlumberger’s best and final offer, he told Sledge.
By then, domestic benchmark crude had fallen below $40 a barrel for the first time in six years.
Facing an energy slump that showed no signs of abating, Moore told the board he was concerned that Cameron would have a tougher time meeting its financial forecasts than he originally thought.
By joining Schlumberger, Cameron would have a stronger financial profile than it would as a standalone company.
Cameron’s board agreed. The $ 12.7 billion deal, worth 56 percent more than Cameron’s value on paper, seemed fair for shareholders.
The companies finalized a deal and announced the acquisition early Aug. 26.
Federal regulators this week cleared the proposed merger without any conditions, putting the companies on track to close the deal early next year.
Cameron shareholders are slated to vote on the arrangement next month. Moore stepped down as CEO in October under a succession plan announced in May.
The chief operating officer, Scott Rowe, succeeded Moore.