Varco Agrees to Merger; Stock Falls $2.50

Investors of Varco International began shedding shares Thursday after the Orange oil equipment company agreed to a merger that would pay shareholders less than the stock’s closing price Wednesday.

Varco’s stock, which closed Wednesday at $15.56, fell $2.50 on Thursday, closing at $13.06 a share in heavy trading on the New York Stock Exchange.

Under the merger agreement, Houston-based Tuboscope will swap 0.7125 of a share for each Varco share, valuing Varco at less than $13 a share based on Tuboscope’s closing price of $17.94 on Wednesday. Tuboscope shares closed Thursday at $17, down 94 cents, on the New York Stock Exchange.

Jefferies & Co. analyst S. Magnus Fyhr said such uneven stock-swap ratios are not unheard of in oil and energy mergers.

Tuboscope and Varco “wanted a 50-50 merger of equals, and maybe they felt Varco was overvalued and Tuboscope was undervalued,” he said.

Varco President and Chief Operating Officer Michael Sutherlin said the merger is a marrying of equals and he believes it will increase shareholder value for both companies.

“We’re not looking at this in terms of day-to-day stock price,” he said.