Merger Not a Simple 3.5%: Robbins & Myers, Inc. (RBN), National-Oilwell Varco, Inc. (NOV)

Likely Outcome and Long-Term Prospects

The deal is simply the latest in the current wave of consolidation that has swept the energy-extraction and oilfield-services industries. For its part, National Oilwell Varco is poised to obtain valuable assets, manufacturing processes and employees from one of its smaller competitors. Meanwhile, long-term Robbins & Myers shareholders will receive a solid return on their investment and reduce their exposure to an often-volatile market sector.

After the merger, National Oilwell Varco should be better-equipped to handle the challenges of a changing energy-extraction industry. The rapid development of shale oil and tar-sands deposits on the North American continent bodes well for its existing domestic infrastructure. Likewise, the rapid growth in the continent’s wind-power production capacity should benefit its booming turbine division.

Whereas larger competitors like Houston-based Schlumberger Limited. (NYSE: SLB) and Halliburton Company (NYSE: HAL) have diversified across a wide range of industries, National Oilwell Varco remains focused on energy production. While this opens it up to the threat of a sudden drop in oil prices, its investment in natural gas and wind-power services should insulate it somewhat from such a threat. In addition, it is less exposed to the legal pitfalls of operating in dangerous or politically-charged environments. By contrast, much of Halliburton’s logistical infrastructure exists in unstable parts of the world. Halliburton is in countries like Iraq, Venezuela, and Congo.  For its part, Schlumberger has significant deep-sea drilling resources that are subject to costly hangups.

Barring an unforeseen turn of events, it appears likely that the Justice Department’s antitrust review will pass muster. Once this happens, the deal will be given the go-ahead to close on February 19, 2013. Arbitrage investors who wish to take advantage of a temporary price discrepancy in shares of Robbins & Myers would do well to watch the stock at these levels.

The article Merger Not a Simple 3.5% originally appeared on Fool.com and is written by Mike Thiessen.