425: Schlumberger to Acquire ChampionX in All-Stock Transaction Valued at $40.59 Per Share

Schlumberger (SLB) is set to acquire ChampionX in an all-stock deal, offering 0.735 shares of SLB for each ChampionX share, valuing ChampionX at $40.59 per share.

Summary

• Schlumberger (SLB) plans to acquire ChampionX in an all-stock transaction.
• ChampionX shareholders will receive 0.735 shares of SLB for each ChampionX share.
• The deal values ChampionX at $40.59 per share, representing a 14.7% premium based on the closing price on April 1, 2024.
• Upon closing, ChampionX shareholders will own approximately 9% of SLB's outstanding shares.
• The acquisition is expected to close before the end of 2024, subject to customary closing conditions and regulatory approvals.
• SLB anticipates annual pre-tax synergies of approximately $400 million within three years, with 70-80% realized in 2026 and the remainder in 2027.
• These synergies will come from reduced operating costs, supply chain optimization, G&A savings, and revenue synergies.
• SLB is raising its 2024 target for total return of capital to shareholders from $2.5 billion to $3 billion, with the $0.5 billion increase in the form of share repurchases.
• The target for returns to shareholders in 2025 is set at $4 billion.
• The transaction is expected to be accretive to free cash flow per share in 2025 and accretive to earnings per share in 2026.
• The receipt of stock consideration in the transaction will be a taxable event to ChampionX's shareholders.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the acquisition, highlighting expected synergies, accretion to earnings, and increased returns to shareholders. The all-stock transaction structure is also viewed favorably for maintaining balance sheet strength.

Positives

• The acquisition will increase SLB's exposure to the production and recovery space.
• The combined portfolio will allow for greater innovation, market reach, and customer value.
• Customers will benefit from an enhanced portfolio, geographical reach, and technology innovation.
• The acquisition will strengthen SLB's international offering while driving innovation and efficiency in North America.
• SLB expects annual pre-tax synergies of approximately $400 million within three years.
• SLB is raising its 2024 target for total return of capital to shareholders from $2.5 billion to $3 billion.
• The transaction is expected to be accretive to free cash flow per share in 2025 and accretive to earnings per share in 2026.

Negatives

• The receipt of stock consideration in the transaction will be a taxable event to ChampionX's shareholders.
• The annual incremental after-tax depreciation and amortization as a result of fair value adjustments to the net assets of ChampionX is estimated to be approximately $0.06 to $0.07 per share.

Risks

• The transaction is subject to customary closing conditions and regulatory requirements.
• There is a risk that ChampionX stockholders will not adopt the merger agreement.
• The announcement of the proposed transaction could disrupt the businesses of SLB and ChampionX.
• Difficulties in retaining and hiring key personnel and employees could arise.
• The ability to maintain favorable business relationships with customers, suppliers, and other business partners could be affected.
• The anticipated or actual tax treatment of the proposed transaction could differ.
• The ability of SLB and ChampionX to integrate the business successfully and to achieve anticipated synergies and value creation from the proposed transaction is not guaranteed.
• Changes in demand for SLB's or ChampionX's products and services could occur.
• Global market, political, and economic conditions could impact the transaction.
• Failure to effectively and timely address energy transitions could adversely affect the businesses of SLB or ChampionX.

Future Outlook

SLB expects the transaction to be accretive to free cash flow per share in 2025 and accretive to earnings per share in 2026. The company anticipates annual pre-tax synergies of approximately $400 million within three years, with 70-80% realized in 2026 and the remainder in 2027.

Management Comments

• SLB's core oil and gas business will continue to be a key engine of growth.
• Deliberately increasing our exposure to the production and recovery space will align us with a growing and resilient OpEx spend category into the next decade.
• Customers will benefit from the enhanced portfolio, geographical reach and technology innovation.
• We are confident in the value that this transaction will create, and in our ability to continue generating strong cash flows from our broader portfolio.
• We will preserve the agility and customer relationships in North America, which ChampionX is known for, and we will maximize the benefit from SLB's market reach internationally.

Industry Context

This acquisition reflects a trend in the oil and gas industry towards consolidating service providers to offer more comprehensive solutions and capture a larger share of the production and recovery market. SLB's move to increase its exposure to the production phase aligns with the industry's focus on optimizing existing assets and improving efficiency.

Comparison to Industry Standards

• The acquisition of ChampionX by SLB is similar in scope to other major consolidations in the oilfield services sector, such as Baker Hughes' acquisition of GE Oil & Gas.
• The expected synergies of $400 million within three years are in line with typical synergy targets for large mergers in the industry.
• The all-stock transaction structure is a common approach in large mergers to preserve balance sheet strength and provide the target's shareholders with the opportunity to participate in the combined company's future growth.
• The premium of 14.7% is within the typical range for acquisitions in the oil and gas industry.

Stakeholder Impact

• ChampionX shareholders will receive SLB shares and have the opportunity to participate in the combined company's future growth.
• SLB shareholders will see increased returns of capital.
• Customers will benefit from an enhanced portfolio, geographical reach, and technology innovation.
• Employees of both companies will become part of the combined organization, with a focus on preserving the best aspects of both cultures.

Next Steps

• ChampionX stockholders will need to vote on the merger agreement.
• SLB and ChampionX will work to obtain regulatory approvals.
• A joint integration team will focus on integrating the two organizations.
• SLB intends to file a registration statement on Form S-4 with the SEC.

Key Dates