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, enhancing its production and recovery portfolio and expecting $400 million in annual pre-tax synergies within three years.

Summary

• Schlumberger (SLB) will 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, 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.
• 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.
• At closing, SLB's geographical mix will be 75% international and 25% North America.

Sentiment

Score: 8

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

Positives

• The acquisition will enhance SLB's production and recovery portfolio.
• Customers will benefit from the enhanced portfolio, geographical reach, and technology innovation.
• The combined company expects to achieve $400 million in annual pre-tax synergies within three years.
• SLB is increasing its return of capital to shareholders, targeting $3 billion in 2024 and $4 billion in 2025.
• The transaction is expected to be accretive to free cash flow per share in 2025 and accretive to earnings per share in 2026.
• ChampionX's artificial lift portfolio has strong customer recognition in North America and generates superior margins.

Negatives

• The receipt of stock consideration in the transaction will be a taxable event to ChampionX's shareholders.
• The transaction is subject to customary closing conditions and regulatory requirements, which could delay or prevent the deal from closing.

Risks

• The ultimate outcome of the proposed transaction between SLB and ChampionX is uncertain.
• 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 is not guaranteed.
• The anticipated or actual tax treatment of the proposed transaction is subject to change.
• The ability to secure government regulatory approvals on the terms expected, at all or in a timely manner is not guaranteed.
• Failure to effectively and timely address energy transitions could adversely affect the businesses of SLB or ChampionX.

Future Outlook

SLB expects the transaction to enhance its production and recovery portfolio, drive synergies, and increase returns to shareholders. The company anticipates accretion to free cash flow per share in 2025 and to earnings per share in 2026.

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.
• Our intention is to leverage the best aspects of both organizations.
• 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

The acquisition reflects a trend in the oil and gas industry towards consolidation and a focus on production optimization and efficiency. SLB's move to increase its exposure to the production and recovery space aligns with the growing importance of OpEx spending in the energy sector.

Comparison to Industry Standards

• SLB's acquisition of ChampionX is similar to other large-scale mergers in the oilfield services sector, such as Baker Hughes' acquisition of GE Oil & Gas.
• The expected synergies of $400 million are in line with typical synergy targets for acquisitions of this size.
• The all-stock transaction structure is a common approach in large mergers to preserve balance sheet strength and provide target shareholders with upside potential.

Stakeholder Impact

• ChampionX shareholders will receive SLB shares and participate in the future upside of the combined company.
• SLB shareholders will benefit from the expected synergies and accretion to earnings and free cash flow.
• Customers will gain access to an enhanced portfolio of products and services.
• Employees of both companies will become part of a larger organization with expanded opportunities.

Next Steps

• ChampionX stockholders need to adopt the merger agreement.
• SLB and ChampionX will continue to operate independently until the transaction closes.
• A joint integration team will work across both companies until closing and beyond.
• SLB intends to file a registration statement on Form S-4 with the SEC.

Key Dates