Nat'l Oilwell Absorbs CE Franklin

Zacks

NOV Distribution Services ULC ("NDS") – a wholly owned ancillary of National Oilwell Varco Inc. (NOV) announced the completion of the acquisition of Canadian oil and gas production equipment supplier CE Franklin Ltd. (:CFK). The announcement of this deal was first made in late May.

Following the approval of CE Franklin shareholders and the Court of Queen's Bench of Alberta on July 16, NDS acquired all the issued and outstanding common shares of CE Franklin for a cash payment of C$12.75 per share, netting C$239 million.

CE Franklin –shares of which are expected to be delisted from the TSX and NASDAQ by the end of July 2012 – will operate as a wholly owned subsidiary of NDS.

Calgary-based CE Franklin, through 39 branches in western Canada, used to be a distributor of more than 25,000 products – including pipes, valves, flanges, fittings and other equipment – that cater to over 3,000 clients in the energy industry.

We expect this acquisition to immensely benefit National Oilwell Varco through a broader scale and scope of the solutions that it offers to oil and gas customers worldwide. CE Franklin’s products and services will likely enhance the Canadian business market of National Oilwell Varco via new offerings and customer base.

Houston, Texas based National Oilwell Varco plans to release its second quarter results on July 26, 2012, before the start of trading.

The Zacks Consensus earnings estimate for the quarter is $1.40 per share, on revenue of $4,446 million.

We believe that National Oilwell Varco remains better positioned to navigate the uncertain environment than many of its peers, given its strong balance sheet, backlog of over $10 billion, leading market position and technology innovation.

However, we remain somewhat cautious about the company’s performance in the coming months, considering its sensitivity to the gas/oil price volatility, as well as exploration and production spending patterns, costs, international business risks and failure to adapt to technological changes.

We maintain our long-term Neutral recommendation on the stock. National Oilwell Varco, which ranks ahead of Cameron International Corp. (CAM) as the biggest U.S. maker of oilfield equipment, currently holds a Zacks #3 Rank (Hold), reflecting a short-term Hold rating for a period of one to three months.
 

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