Rice University in Houston is known more for brains than brawn. The school’s mascot is an owl. Rice’s sports teams have often been overmatched by their opponents. So, as the point guard on Rice’s basketball team in the early 1980s, Stephen Trauber had to develop a keen sense of strategy, along with singular tenacity.
Those traits have served him well in a two-decade career as a merger banker in the oil patch. And they were on display in his latest deal: the $11 billion merger, announced in February, of oil field services suppliers Schlumberger and Smith International.
Talk about overmatched. Schlumberger, with offices in Paris, Houston and the Hague, is the world’s biggest oil field services outfit, with $23 billion in revenue in 2009. By contrast, Houston-based Smith is fifth-largest, with $8.2 billion in sales last year. What’s more, the recession and collapse in oil prices hit Smith much harder. Its profits plunged 81 percent in 2009, while those of Schlumberger, which was buffered by its global business, dropped 42 percent.
Guess which company Trauber represented? The UBS managing director was the sole adviser to underdog Smith. Yet he managed to negotiate a hard bargain — so tough, in fact, that some Schlumberger shareholders are suing the company for overpaying. (To be sure, some Smith shareholders are suing that company for accepting too little — this is the oil patch.) Trauber diplomatically refers to the terms as “fair.” As for tenacity, Smith fended off Schlumberger for five years.
Price was the persistent glitch then, and it was again a sticking point in the recent talks. But in the M&A equivalent of a full-court press, Trauber negotiated relentlessly on Smith’s behalf, even canceling a long-planned trip to South Africa with his wife, Leticia, and their three children.
The resulting all-stock deal calls for one Smith share to be exchanged for every 0.6966 of a Schlumberger share. Based on the companies’ stock prices before news of the deal leaked on February 19, that amounted to a generous 37.5 percent premium. That’s significantly above the 26 percent average premium for global oil and gas deals over the past two years, according to data-tracker Dealogic.
“The combination of these two firms is likely to realize some significant synergies,” says Trauber. “And the multiple of Schlumberger’s traded shares relative to that of Smith’s makes the valuation attractive for both sides on a long-term basis.”
Douglas Rock, Smith’s chairman, is one pleased customer. “Steve is very competitive and enthusiastic,” he says. “He did a heck of a great job building up the UBS team; he is the one I turn to for advice.”
The merger is sure to create a deep hole. Schlumberger is the largest provider of integrated drilling solutions, and Smith is a leader in so-called down-hole drilling technology, which allows oil and gas companies to burrow deep into the earth at all angles to get at hitherto inaccessible hydrocarbon reserves.
Trauber does not always play for the underdog. He represented Anadarko Petroleum Corp. in its $21 billion takeover of two rivals, Kerr-McGee Corp. and Western Gas Resources, in 2006. One negotiating challenge for Trauber was persuading his own bank, along with Credit Suisse Group and Citigroup, to chip in $8 billion apiece on a bridge loan commitment.
“Steve works hard to execute deals with passion,” says James Hackett, CEO of Anadarko. “He’s responsible for putting UBS on the map, and he competes for every piece of the business.”
As a kid in Connecticut, Trauber had his heart set on medical school, until he spent a summer as an intern at a hospital and got to hold actual hearts in his hand every day. After Rice, he earned an MBA from Northwestern University in 1988 and began his Wall Street career as a generalist M&A banker at Credit Suisse. He moved to Dallas the next year and started to work on energy deals and has been at it ever since, joining UBS from Morgan Stanley in 2003.
Anadarko’s Hackett should know well about Trauber’s competitive streak. The two are Houston neighbors and each year vie for the gaudiest display of Christmas lights. This season Trauber spent $2,000 on electricity bills to light massive icicles. “I think of it as supporting our local utility company,” says the energy banker.
