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Nat'l Oilwell Buying CE Franklin

Zacks Equity Research

Large-cap oilfield services company National Oilwell Varco Inc. (NOV) has agreed to acquire Canadian oil and gas production equipment supplier CE Franklin Ltd. (:CFK) for about C$240 million ($233.08 million) in cash.

The transaction has been approved by the boards of both the companies but awaits regulatory and shareholder approval. In particular, the deal needs the go-ahead of at least two-thirds of CE Franklin shareholders at a special meeting scheduled for mid-July. We expect the buyout to conclude shortly after the shareholders vote.    

The world’s biggest oilfield services provider, Schlumberger Ltd. (SLB), CE Franklin’s largest shareholder, together with the firm’s directors and executive officers – that collectively control 57% of the shares – have agreed to vote in favor of the transaction.   

CE Franklin is obligated to pay a termination fee of $7.5 million to National Oilwell Varco in case it accepts a superior offer though the company said it would not solicit other proposals. 

As per the deal, CE Franklin shareholders would get C$12.75 in cash for each share they hold. At CE Franklin’s Wednesday closing stock price of C$9.35 on the Toronto Stock Exchange, the deal values the company’s shares at a 36% premium.

Calgary-based CE Franklin, through 39 branches in western Canada, is 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.

The acquisition will allow National Oilwell Varco to broaden scale and scope of the solutions that it offers to oil and gas customers worldwide. Post merger, National Oilwell Varco expects CE Franklin’s products and services to benefit its Canadian business through new offerings and customer base.

National Oilwell Varco, which ranks ahead of Cameron International Corp. (CAM) as the biggest U.S. maker of oilfield equipment, is currently a Zacks #3 Rank (Hold) stock, implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months. We are also maintaining our long-term Neutral recommendation on the stock.

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