FBR: National Oilwell Varco Should Buy Weatherford

Analyst Thomas Curran believes that Weatherford “would attractively conform to what we believe should be NOV's three primary criteria for choosing among the ‘extraordinary acquisition opportunities’ management expects to arise over this downturn and enable NOV to become an early mover in the ‘integration 2.0’ market.”

Curran believes that Weatherford fits the criteria of helping National-Oilwell Varco realize meaningful cost synergies and/or operational improvements, help shift exposure to land from offshore and enhance the company’s portfolio of onshore completion and production offerings.

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What's Needed

According to the FBR report, National-Oilwell Varco would need to convince Weatherford to a 50 percent premium all cash payment for the deal and close the acquisition in 4Q16. The transaction would need to be funded via debt, which would leave the combined entity with a steep but manageable debt-to-total capital ratio.

The acquisition is expected to be accretive from year one, if National-Oilwell Varco is able to “secure an interest rate on deal debt of 5.25 percent and to reduce WFT’s SG&A and R&D expenses by 30 percent and 20 percent, respectively.”

The EPS estimates for 2015 and 2016 have been lowered from $3.15 and $2.85 to $3.04 and $1.80, respectively.

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