Schlumberger sells IT unit for $1.5 bln

LONDON (CBS.MW) — Oil services giant Schlumberger on Monday said it would sell its IT services unit for nearly $1.5 billion and indicated further sales were on the way.

French IT consulting group Atos Origin (005173) agreed to buy the core IT services of SchlumbergerSema from Schlumberger
for 1.28 billion euros ($1.47 billion), with 400 million euros of the deal in cash.

“We view the divestiture as positive,” said Lehman Bros. analyst James Crandell. “We believe that Schlumberger, as the sale of its remaining non-oilfield assets occur, will increasingly be valued as a pure oil service company and the company’s multiple should expand to a meaningful premium to its oil service peers.”

Schlumberger also said it would spin off or sell its smart card business.

The deal is expected to close by the end of January.

Schlumberger shares rose 8 cents to close at $51.07 after trading above a 52-week high of $51.09 reached on Sept. 19. Volume of 6 million shares traded eclipsed the daily average of 2.99 million.

Schlumberger said it wanted to concentrate on its core upstream oil and gas industry services business.

“Schlumberger has the fundamental IT knowledge needed and will address these opportunities through the expanded Schlumberger Information Solutions operating unit that is part of Schlumberger Oilfield Services,” said Chairman Andrew Gould.

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Crandell said the Sema sale and either the sale or initial public offering of additional non-oilfield service assets next year would help Schlumberger return to a top-tier oil services company.

“One with a strong balance sheet, leadership technology, and strong market positions around the world,” Crandell noted, adding it was positive for the stock, which was one of his top recommendations.

Schlumberger expects no impairment charge to earnings for the third quarter as a result of this transaction.

“Investors are asking, ‘What’s Schlumberger worth as a pure play?’ which shows that the sale to Atos is more about getting past Sema than getting value for it,” JPMorgan Securities said.

After the deal is completed, Schlumberger will then reduce its Atos Origin stake from 28.9 percent to 19 percent.

For Atos Origin, the deal offers the opportunity to bolster its British offering. The group’s combined revenues will be over 5 billion euros.

“The deal is another step in the European consolidation which gives Atos Origin a bigger scale in Europe and will give them critical mass in some markets such as the U.K.,” Merrill Lynch said.

In response to the announcement, Moody’s Investors Service affirmed Schlumberger’s “A1” senior unsecured rating, due, in part, to management’s plans to apply all the proceeds to debt repayment, but changed its outlook to negative from stable.

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The outlook downgrade reflects: “Moody’s concern that SLB is selling the majority of its SchlumbergerSema businesses at a value considerably below their acquisition cost; uncertainty as to the total proceeds SLB will realize from the sale; the company’s heavy reliance on divestitures to meet its net debt targets; and continued weakness in the seismic sector and its implications for the future profitability of WesternGeco.”

WesternGeco charges

Schlumberger also said it will take an after-tax charge of $205 million in the third quarter, relating to business conditions at seismic survey group WesternGeco. WesternGeco will take a $398 million pre-tax charge.

“The conventional seismic market remains under pressure,” Crandell said. “The company continues to require high pre-funding levels for its multi-client work.”

WesternGeco’s 30 percent owner, Baker Hughes
will take a $106 million after-tax charge. See full story.

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