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 firms edged closer to an agreement.
Schlumberger, the Paris- and Houston-based oil field services giant, was relentless, and Cameron began to doubt whether it would be able to achieve its revenue and spending forecasts amid a tougher-than-expected business climate, according to the latest federal filings detailing the conversations that led to the Aug. 26 merger announcement.
Oil prices tank
Schlumberger first expressed interest in Cameron in November 2014. The company indicated 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 new technologies for boosting oil production from difficult-to-tap deep-water reservoirs, according documents recently filed with the U.S. Securities and Exchange Commission.
But Cameron’s board said it wasn’t interested and Schlumberger dropped its pursuit.
Five months later, 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 once again approached Cameron with an offer, arguing that it could could reap benefits and save money by combining with its OneSubsea partner.
With the board’s approval, Schlumberger’s CEO Paal Kibsgaard sat down with Cameron’s then CEO Jack Moore following 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.
When Moore got the official proposal, it called for acquiring Cameron for $68 per share in a deal worth about 24 percent more than Cameron’s total market capitalization. Cameron’s board met and decided that while it made sense to join forces with a larger, more diversified oil field services firm amid a gloomy time in the services industry, Schlumberger’s bid was too low to warrant pursuing the deal any further.
Moore broke the news to Kibsgaard, but Schlumberger was still intrigued. Kibsgaard said Schlumberger would consider upping its offer if it could take a thorougher look at Cameron’s business, according to detailed background of the merger laid out in a recent proxy statement filed with the SEC.
Cameron’s board met again in May, and they reasoned that there were not any other companies with Schlumberger’s financial heft and determination to buy that could exceed the offer. But the board members still wanted to press Schlumberger for a higher price.
Their desire for a better deal came at a tough time for Cameron. 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 wasn’t persuaded. The company rejected the offer again. Schlumberger responded quickly, tweaking its proposal to increase the stock component from 50 percent to 80 percent, but Cameron once again turned them down.
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 boosted its bid to more than $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, dashing any remaining hopes for a quick industry turnaround.
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. It would have more diversified revenue sources, broader offerings of products and services and a bigger footprint.
Cameron’s board agreed: It was time to move forward. The $12.7 billion deal, worth about 56 percent more than Cameron’s value on paper, seemed fair for shareholders, Cameron said in SEC filings.
The two companies finalized a deal and announced the acquisition early Aug. 26. Cameron never conducted any public or private auctions to entertain offers from other potential buyers.
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. Chief Operating Officer Scott Rowe succeeded Moore in the top office.
<p>Buyer: <b>WPX Energy</b></p>
<p>Target:<b>RKI Exploration and Production</b></p>
<p>Buyer: <b>WPX Energy</b></p>
<p>Target:<b>RKI Exploration and Production</b></p>
Photo: George Frey / Bloomberg
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