Oilfield services leader Schlumberger aims to gain market share in shale gas drilling with its purchase of rival Smith International, and expects few antitrust hurdles for the takeover.

Investors’ belief in the deal’s potential gained traction, with Smith shares extending their early gains and closing 8.8 per cent higher at $41.03. Schlumberger trimmed its early losses and closed 3.7 per cent lower at $61.57.

On a conference call with analysts, Schlumberger chief executive Andrew Gould said he had been considering the acquisition “for some time,” and the timing now was right, even though he acknowledged paying “a significant premium.”
The stock market had shaved about $700 million off the original $11.3 billion value.

But analysts welcomed Gould’s move to get his hands on Smith’s drillbit technology, in which the company made its name when it was founded 108 years ago in California’s oil boom.

“The bits is a really cool business, and Smith is the best at that,” said Doug Sheridan of EnergyPoint Research.

Under the terms, Smith shareholders will receive 0.6966 shares of Schlumberger for each of theirs. That originally valued Smith at a 37.5 per cent premium, according to a joint statement by the companies. They expect the deal, subject to shareholder and regulatory approval, to close this year. Schlumberger expects the acquisition to add to earnings per share in 2012, after realizing pretax savings after costs of about $160 million in 2011, and double that the next year.

Schlumberger said later that in the event of a deal termination, Smith may have to pay a fee of $340 million. Big oil services players, which also include Halliburton and Baker Hughes, say clients, and state-run oil companies in particular, increasingly demand more services from a single provider.