Oil and gas field surveyor Geophysique will buy U.S. rival Veritas for $3.1 billion in cash and stock, the companies announced Tuesday, establishing a major new global player in the booming oil exploration industry.
Compagnie Generale de Geophysique SA and Houston-based Veritas DGC Inc. said both boards had unanimously approved the deal to create CGC-Veritas, "the industry benchmark for seismic technology and services."
Oil exploration service companies are doing strong business around the world amid broadly rising demand for oil and pressure on reserves.
The offer, just over half of which is in Geophysique stock, values Veritas shares at $75 — a 21 percent premium to their Friday closing price of $62.18.
Shares in Geophysique fell 8 percent to close at 122.70 euros ($157.69) in Paris. Veritas shares rose 11.5 percent to close at $69.30 in New York.
Analysts suggested Geophysique's sharp drop reflected the dilution of earnings as a result of the price paid for the acquisition — as well as concern that a further capital increase could be needed to fund the deal.
Societe Generale analyst Thierry Baudin said the merger was nevertheless viewed positively. "The transaction is based on a sound rationale, offering good geographical fit and should help to maintain price momentum in the industry," he said.
The tie-up is expected to produce earnings per share growth "in single digits" in 2008 after a neutral impact in 2007, said Geophysique Chairman and Chief Executive Robert Brunck, who will retain both roles within the combined company. Veritas Chairman and CEO Thierry Pilenko would become a director on the new board.
The deal appeared to raise expectations that consolidation could follow among other oil and gas surveyors. American Depository Shares in Norway-based Petroleum Geo-Services ASA were 3.3 percent higher at $55.42 on Wall Street.
Geophysique, based in the southern Paris suburb of Massy, predicted that its tie-up with Veritas will generate annual savings of about $44 million by the end of 2007, reaching $65 million the following year.
In their joint statement, the companies said the combination of their seismic data libraries, processing and imaging tools would "create the industry reference," with a combined work force of 7,000.
Brunck also forecast revenue of $2.5 billion for the combined company in 2007, and total integration costs of about $20 million, of which $16 million would be booked this year. Geophysique alone posted revenue of 870 million euros ($1.12 billion) in 2005.
The deal is expected to be completed by the end of 2006, subject to regulatory approval both sides of the Atlantic and a vote by Geophysique shareholders in December, the companies said.