IB Net Payout Yields Model

Schlumberger: Troubles Of A Lower Margin Business Addition

  • Schlumberger paid a hefty premium for the low-margin business of Cameron.
  • A promising business combination isn't always financially rewarding to shareholders.
  • The recommendation is to stay away from Schlumberger until the merger integration starts achieving synergies by late 2016.

One of the most overlooked aspects of corporate combinations is the psychological impacts on stock multiples. A merger might be accretive to the acquirer, but if the combination reduces the growth rate or margins going forward, it could impact the valuation multiple assigned the stock. A stock that currently holds a premium multiple might suddenly lose that valuation due to lower growth rates going forward or less impressive margins.

Read the full article on Seeking Alpha.

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