Just when you thought National Oilwell Varco (NYSE: NOV ) couldn't get much bigger, it went ahead and absorbed the largest drill pipe company in the world.
I don't mean to pigeonhole target company Grant Prideco (NYSE: GRP ) . It also faces off against Tenaris (NYSE: TS ) and Vallourec in the market for premium tubular products, and Grant's drill bits compete with those of Baker Hughes (NYSE: BHI ) and Halliburton (NYSE: HAL ) . Nevertheless, the high-margin drill pipe business seems to be what NOV desires the most. After all, it's highly complementary to the products feeding NOV's booming offshore backlog.
Invariably, deal-doers will point to synergies, cost savings, and earnings accretion. This tie-up is no exception, but what concerns me about the transaction is not a financial matter. Not directly, anyway.
All too often, we're stuck listening to what companies have to say about themselves. That's why I'm a big fan of the work done by Doug Sheridan and the rest of the team at EnergyPoint Research. Their customer satisfaction surveys provide an invaluable glimpse into the quality of services provided in the oil patch.
In a note today, Sheridan hit on a matter quite distinct from the usual Wall Street take. In terms of customer satisfaction, Grant Prideco rated at or near the top of the pile in both drill pipes and drill bits in 2007. NOV, on the other hand, was rated dead-last overall by large and multinational respondents.
Grant Prideco customers may be rightfully concerned about seeing their quality of service deteriorate as the company is merged. If this does happen, driving customers to defect, Sheridan argues that Smith International (NYSE: SII ) , an able competitor in both drill pipes and drill bits, would benefit most. I think it's fair to say that Tenaris would benefit as well, though as the leader in tubular products, it has less to gain by grabbing market share from Grant.
- I've been saying for a while that Varco is very valuable.
- Varco's value stems largely from the deepwater dance marathon.
- Are you guilty of ogling this offshore driller?