NEW YORK (CNNMoney.com) -- Oil services giant Schlumberger Ltd. says it is buying rival Smith International Inc. in an all-stock deal worth $11 billion.
Schlumberger (SLB) said its purchase of Smith (SII, Fortune 500), which makes drill bits, drilling fluids and provides drilling-related services for the oil and gas industry, will boost its earnings in 2012. The company expects pretax savings of $160 million in 2011 and $320 million in 2012.
"Smith's drilling technologies, other products and expertise complement our own, while the geographical footprint of Schlumberger means we can extend our joint offerings worldwide," said Schlumberger chief executive and chairman Andrew Gould in a statement released Sunday.
Through the agreement, Smith shareholders will receive 0.6966 share of Schlumberger in exchange for each Smith share. Based on Friday's closing prices, the deal will offer Smith shareholders an 18% premium.
Once the deal closes, Smith shareholders will hold a 12.8% stake of the company.
The transaction, which has been accepted by the boards of directors of both Houston-based companies, is pending approval from Smith stockholders and regulatory clearance.
The companies expect to finalize the deal in the second half of 2010.
Shares of Smith spiked more than 6% in early trading Monday, while shares of Schlumberger fell more than 6% on the news.
Morgan Stanley analyst Ole Slorer said in a research note that "the strategic fit between Schlumberger and Smith makes this combination particularly attractive."
He added that "the Smith acquisition will position Schlumberger as the dominant service company in deepwater and global shale gas developments, two pillars of the next energy cycle."
During a conference call, Gould said increased drilling is a "necessity" to sustain and increase world oil and gas production, and the deal will allow Schlumberger to offer its customers crucial drilling technologies.
The transaction, which is the largest ever in the oil services industry, is the second major merger in the sector in the last six months. In August, Baker Hughes (BHI, Fortune 500) announced it was acquiring BJ Services (BJS, Fortune 500) for $5.5 billion.
Slorer said the oilfield services sector will be dominated by Schlumberger, which raked in $29.2 billion in revenue in 2009 including Smith International's figures. That's nearly double what rivals Halliburton (HAL, Fortune 500) and the combined figures of Baker Hughes and BJ Services generated in sales.
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