team3 national oilwell_varco_final
TRANSCRIPT
A closer look at the company’s strategic initiatives
National Oilwell Varco A closer look at the company’s strategic initiatives
through Return Driven Strategy Framework.
Mashuk, Abdullah
Moraes, Ricardo
Rabello, Vitoria
Team 3Arakelian, Victoria
Gurumurthy, Jayaram
Hoffman, Aaron
Mathur, Pankaj
NOV ranked No. 1 in 2008 in Houston Chronicle’s list of 100 companies.
“Self-styled Wal-Mart of the
oil patch”oil patch”
Last 10 years performance resulted in superior ROI compared to the industry.
13% 11% 8% 9% 12%
23% 25%
40%33% 29% 27% 26%
19%
0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LFY+1 LFY+2Mkt Imp
ROI'
130%200%
Average ROI
21%
0%20% 15% 4%
130%
6%
62%
3% 11%
-7%
0% 9%
-100%
0%
100%
200%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD 5Yr
CAGR
IC' Growth
0.0
2.0
4.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LFY+1
RelativeTSR
Average Invested Capital Growth
24%
Average Total Shareholder Return
3X
NOV achieved many milestones since its inception over 150 years ago.
1862 – 1987: NOV
operated as separate
companies
1997: begins series of acquisitions
1999: The acquisition of Hitec
ASA of Norway
2005: National Oilwell and
Varco merged to become NOV
1996: Incorporation of National Oilwell,
Inc. and IPO
2001: The first completely
automated oil drilling
equipment
2008: Merge with Grant
Prideco (mkt. cap $32B)
Industry: the price of oil and competitive environment can impact performance.
440 356 438
1720 1790 1868
952 10171089
20
40
60
80
100
1000
2000
3000
4000 International
US
Canada
West Texas
NOV VS.MAIN COMPETITORS
REVENUE 2009 (M$)
NOV 12, 710
FCM TECHNOLOGIES 4,410
CAMERON CORPORATION 5,220
BAKER HUGES 9,660
SMITH INTERNATIONAL 8,220
440 356 43800
2006 2007 2008
West Texas International Price
� Clearly the leader among industry peers� Only company that provide complete solution� Operates globally
Current success is linked to their strategic initiatives.
� Constant Growth through mergers & acquisitions “snowball effect”
� International expansion through mergers & acquisitions
� All in One House
Mergers & Acquisitions
• 2005 National Oil buys Varco for $2.4B which let’s the acquisitions of more than
Deals
Constant Growth through Mergers & Acquisitions
acquisitions of more than
150(!) companies in 4 years
International expansion through mergers & acquisitions
International expansion:
• 2008 Grant Prideco buyout starts strategy of international expansion from 30% To 70% in 5
Reason to expand:
• Industry is violent: politics, economics, legislation, etc.
• Mideast Crisis led to write downs, Company still was profitable
8
from 30% To 70% in 5 years
profitable
9
Unique rig technology:• Allows to install the drilling
point in 3 months, as compared to 1 year
All in One House Rig From Rig to petroleum &
distribution:• Acquisitions has led the
company to have all set of services and solutions
• Consists of 95% changeable parts, which are produced in house.
• Allows to address the customers’ issues faster
10
All-in-one-stop-Strive to new
Big companies in the oilfield industry
Complete solution for oilfield industry
National Oilwell Varco meets all the tenets of the Return Driven Strategy.
Wealth-creation that benefits all
stakeholders
Individual basis branding
All-in-one-stop-shop solution
Strive to new products and
solutions
“Umbrella-Brand” for all products
and services
Big vigilant of customer processes
Next Generation Program
Each brand with own decision
process
Acquisitions of companies with
synergy
Global Presence, Rig Technology, in-house R&D
Regulatory compliance, Globalization awareness
Constant Growth in Market Cap, Steady CFROI, internal control
Wal-Mart of Rigs &
12
Wal-Mart of Rigs &Buffet of oil deals
DISCIPLINED PERFORMANCE
MEASUREMENT AND
VALUATION
Relevant ROI and Capital
Growth Benchmarks
Revenue Metrics & #s
Appendix 1: Return Driven Strategy© Workbench
1996 Strategic Initiative
DEFINE “WEALTH” ETHICALLY
• Capture a significant portion of any increased level of expenditures by its
customers for the construction of new drilling rigs and equipment as well as the
upgrade and refurbishment of existing drilling rigs and equipment.
• Capitalizing on Increasing Demand for Higher Horsepower Drilling Machinery
KEY CUSTOMER SEGMENTS & THEIR UNMET NEEDS• Upstream oil & gas companies
• The advanced age of the existing fleet of drilling rigs
• Increasing drilling activity involving greater water depths and extended reach
• New drilling rig construction and the upgrading and capacity enhancement of existing
rigs
COMPETENCIES TO INNOVATE, BRAND, AND DELIVER OFFERINGS• higher horsepower drawworks, mud pumps and power swivels provide
• integrated information and process systems that enhance procurement, inventory management
* VALUE PROPOSITION * The company seeks to expand its market position by leveraging its
installed base of higher capacity drilling machinery and equipment, expanding its non-capital upstream
products business, building its information technology strategy, and making acquisitions to enhance its
product line.
VIGILANCE TO
FORCES OF CHANGE
Scientific/Technological:• The Company's business is dependent
on and affected by the level of
worldwide oil and gas drilling and
production activity, aging of the
worldwide rig fleet which was
generally constructed prior to 1982
and the profitability and cash flow of
oil and gas companies and drilling
contractors. Drilling activity has
recently increased in the offshore and
deeper land markets, both of which
are particularly well served by the
drilling machinery and equipment
manufactured by the Company.
Cost Related Metrics & #s
Capital Investment Measures
• integrated information and process systems that enhance procurement, inventory management
and logistics activities
• Regionally centralized procurement, inventory and logistics operations in order to gain cost and
inventory utilization efficiencies while retaining responsiveness to local markets.
GENUINE ASSETS
• Large and geographically diverse network of distribution service centers in major
oil and gas producing areas
• Purchasing leverage due to the volume of products sold
• Breadth of available product lines
• Information systems that offer customers enhanced online and onsite services.
manufactured by the Company.
• Worldwide offshore mobile drilling rig
utilization rate was over 90% and
active U.S. land rigs had increased 14%
compared to December 31, 1995.
• Alliance/outsourcing trends among oil
& gas companies
Governmental/Regulatory:• Environment laws and regulations
have changed rapidly over the past 20
year which placed more restriction s
and limitations on activities that may
impact the environment. Compliance
with these laws and regulations did
not adversely affected the company’s
financial condition.
• The Comprehensive Environmental
Response, Compensation and Liability
Act ("CERCLA")
Demographic/Cultural:
SUPPORTING ACTIVITIES
• strategic integration of the Company's distribution expertise, extensive
distribution network and growing base of customer alliances provides an
increased opportunity for cost effective marketing of the Company's
manufactured equipment.
DISCIPLINED PERFORMANCE
MEASUREMENT AND
VALUATION
Relevant ROI and Capital
Growth Benchmarks
Revenue Metrics & #s
Cost Related Metrics & #s
Appendix 2: Return Driven Strategy© Workbench
One Stop Shop
DEFINE “WEALTH” ETHICALLY
KEY CUSTOMER SEGMENTS & THEIR UNMET NEEDS
• Rig Technology, Petroleum Services & Supplies, and Distribution Services
• Solutions and Customized Rigs For eg. The Ideal Rig has thousands of parts, and National
Oilwell Varco makes 95 percent of them.
COMPETENCIES TO INNOVATE, BRAND, AND DELIVER OFFERINGS
• The Company offers Supply Chain Solutions, Lifting and handling solutions, Renting the
* VALUE PROPOSITION * The company seeks to expand its market position by
leveraging its installed base of higher capacity drilling machinery and equipment,
expanding its non-capital upstream products business, building its information
technology strategy, and making acquisitions to enhance its product line.
VIGILANCE TO
FORCES OF CHANGE
Scientific/Technological:
Governmental/Regulatory:
• Rig Assembling in the country
• The recent mideast crisis
impacted the company bottomline
with write down of assets.
Demographic/Cultural:• Any disturbance in the oil
Capital Investment Measures
• The Company offers Supply Chain Solutions, Lifting and handling solutions, Renting the
rigs
• It designs its own pumps to be used in rigs
• They want to be the one stop shop for oil and drilling equipment.
SUPPORTING ACTIVITIES
• NOV IntelliServ is a joint venture between the Company and Schlumberger, Ltd.,
in which the Company holds a 55% interest and maintains operational control.
GENUINE ASSETS 1. Rig Technology
2. Petroleum Services
3. Distribution services
4. Moving towards total solutions by acquisitions of smaller companies. They are really
good in acquisitions, and trying to maintain customized different offering.
• Any disturbance in the oil
producing nations would
impact heavily the industry and
the company.
DISCIPLINED PERFORMANCE
MEASUREMENT AND
VALUATION
Relevant ROI and Capital
Growth Benchmarks
12% ROI and 130% IC
growth achieved in 2005
after the merger
Revenue Metrics & #s
Appendix 3: Return Driven Strategy© Workbench
National Oil Well and Varco Merger-2005
DEFINE “WEALTH” ETHICALLY
Growing feeling from companies and investors that it is better to buy an established
Organization than to build on right from the scratch.
KEY CUSTOMER SEGMENTS & THEIR UNMET NEEDS
• Merger employed together both of the company genuine assets and help NOV to
become a dominant market leader .
• NOI and VRC anticipated and responded correctly the ever-growing worldwide
demand for energy over the next few years.
• Merger able to produced joint offering to target specifically oil and gas drilling
industry which no other competitor couldn’t offered.
COMPETENCIES TO INNOVATE, BRAND, AND DELIVER OFFERINGS
• Merger Brought and packaged together many of the most popular and
respected product and services offering from oil and gas drilling industry.
* VALUE PROPOSITION * “Customer from Oil and Gas drilling industry
benefited from New Merger ability to respond with an unparallel level of
quality in capital equipment, expandable product and services”
VIGILANCE TO
FORCES OF CHANGE
Scientific/Technological:
• Merger combined effort
from R&D of both of the
companies and offered
next generation of energy
product
`
Governmental/Regulatory: Revenue Metrics & #s
Cost Related Metrics & #s
$40-50 million pretax cost
saving after the merger
Capital Investment Measures
$2.5 billion value of the
merger offered 170 million
shares from the new merger
from which NOI get 51% and
Varco get 49% of the Merger
respected product and services offering from oil and gas drilling industry.
• Merger helped NOV to covered a big part of the unmet need of customers
from Oil and Gas Industry i.e. offered One stop solution provider or All in one
shop for Oil and Gad drilling production.
SUPPORTING ACTIVITIES
•Formed a new Entity NOI+VRC = NOV
•Merger offered excellent opportunities for the stockholders, employees and
customers of both companies, as National Oil well and Varco to better positioned
to compete effectively in the global market place.
GENUINE ASSETS of NOI
•Worldwide leader in the design, manufacture and sale of comprehensive systems
and components used in oil and gas drilling and production.
GENUINE ASSET of VRC
• A leading provider of Highly-engineered equipment to the world's oil and gas
industry
Governmental/Regulatory:
Factors that facilitate M&A in
2005:
- Opening up of European
market
- Growing sense of investors
about M&A
- Ease of M&A process
- More availability of cash
Big mergers In 2005:
-- P&G acquired Gillette
-- Adidas acquired Reebok
-- eBay acquired Skype
Demographic/Cultural:
Merger helped NOI and VRC to
better positioned to complete
effectively in the global
market place.
DISCIPLINED PERFORMANCE
MEASUREMENT AND
VALUATION
Relevant ROI and Capital
Growth Benchmarks
National Oilwell Varco will
acquire all of Grant Prideco
for $23.20 in cash and 0.4498
of its own shares per GRP
share. The deal values GRP at
$58 per share, a 22%
premium to Friday’s closing
Appendix 4: Return Driven Strategy© Workbench
<Title of Strategic Initiative>
DEFINE “WEALTH” ETHICALLY
The Company has a long tradition of pioneering innovations which improve the
cost-effectiveness, efficiency, safety and environmental impact of oil and gas
operations. The Company's common stock is traded on the New York Stock
Exchange under the symbol "NOV". The Company operates through three business
segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services.KEY CUSTOMER SEGMENTS & THEIR UNMET NEEDS
COMPETENCIES TO INNOVATE, BRAND, AND DELIVER OFFERINGS
The Company has a long tradition of pioneering innovations which improve the
cost-effectiveness, efficiency, safety and environmental impact of oil and gas
* VALUE PROPOSITION *
VIGILANCE TO
FORCES OF CHANGE
Scientific/Technological:
•Fiber-optic measuring system
in drill pipe
Governmental/Regulatory:
•Changes associated with
operating in foreign countries
Demographic/Cultural: premium to Friday’s closing
price of $47.46.
Revenue Metrics & #s
Cost Related Metrics & #s
Capital Investment Measures
•Combined market cap of $32
b
cost-effectiveness, efficiency, safety and environmental impact of oil and gas
operations.
SUPPORTING ACTIVITIES
GENUINE ASSETS
The Company believes that it has been a leader in the development of new
technology and equipment to enhance the safety and productivity of drilling and
well servicing processes and that its sales and earnings have been dependent, in
part, upon the successful introduction of new or improved products. Through its
internal development programs and certain acquisitions, the Company has
assembled an extensive array of technologies protected by a substantial number of
trade and service marks, patents, trade secrets, and other proprietary rights.
Demographic/Cultural:
•Majority of firms business is
coming from overseas
Appendix 5: Additional Information Historically, drilling companies have ordered customized rigs that can take a year or more to design and build. Many still take that long, but land drilling is so hot today, especially in North America, that National Oilwell Varco is turning out its trademarked Ideal Rig system in as little as three months.
The Ideal Rig has thousands of parts, and National Oilwell Varco makes 95 percent of them — everything but the engines and air compressors. National Oilwell Varco's business is split between overseas and North American operations, which include the U.S. and Canada. That's about to change, thanks to the Grant Prideco addition.Miller said he expects international operations to account for 70 percent of business in five years as overseas drilling continues to expand and the Grant Prideco merger takes the company into new territory.Some of the hottest contracts National Oilwell Varco is working on now involve rigs for major natural gas plays, including drilling in the Algerian National Oilwell Varco is working on now involve rigs for major natural gas plays, including drilling in the Algerian desert and in Russia, where the company recently signed a $400 million deal to build two floating rigs for the Shtokman field in the Barents Sea.
Clay Williams, the company's chief financial officer, said snapping up smaller rivals doesn't just take National Oilwell Varco into new markets. It can mean striking technological pay dirt. The Natixis Bleichroeder report points to one gem of the Grant Prideco acquisition — the IntelliServ Network. Analyst Jeff Spittel calls it "a potentially game-changing technology" with great promise for future profits. IntelliServ embeds a fiber-optic measuring system in drill pipe that tells operators on the drill floor exactly what is going on thousands of feet below at the drill bit. The instantaneous data feeds should mean more precise drilling and could prevent blowouts.
� 700 worldwide manufacturing, sales, and service centers
� Customer-focused solutions that meet the quality, productivity, andenvironmental requirements
� Worldwide leader in providing major mechanical components for landand offshore drilling rigs
Been dedicated to provide highest quality oilfield products and services since 1841
and offshore drilling rigs
� Provides Oil & Gas supply chain services through its network ofdistribution service cents
19
The incorporation in 1996 and subsequent IPO allowed the company to grow faster.
IPO SNAPSHOT
� EXCHANGE: NYSE
� SHARES OFFERED: 4 million
� POST-OFFERING SHARES: 17.7million
� PROPOSED OFFER PRICE: $ 17.0 -$ 15.0
OPPORTUNITY�Construction of new drilling rigs and equipment as well
as the upgrade and refurbishment of existing drilling rigsand equipment.�Increasing Demand for Higher Horsepower Drilling
Machinery
TRENDS� ACTUAL OFFER PRICE: $ 17.0
� FIRST-DAY CLOSING PRICE: $ 20.1
� OFFERING AMOUNT: $ 68.0 million
TRENDS�90% offshore mobile drilling rig utilization and increased
land rig utilization�Alliance/outsourcing trends among oil & gas companies
COMPETENCIES�Large and geographically diverse network of distribution
service centers�Purchasing leverage due to the volume of products sold�Breadth of available product lines�Information systems that offer customers enhanced
online and onsite services.
Multiple acquisition allowed NOV to become one stop shop.
Opportunities:
� NOV wants to become a one stop shop for oil and drilling equipments
� Their main offerings : Rig Technology, Petroleum Services & Suppliesand Distribution Services
Trends� NOV started from the year 1998 to 2006 have acquired approximately� NOV started from the year 1998 to 2006 have acquired approximately
150 companies to diversify their portfolio. Growth as seen in CFROI
� They develop complete solutions for the oil and drilling companies fortheir rigs.
� NOV is contemplating of venturing into alternative energy sources
Core Competencies� In a rig manufactured by NOV, 95% parts are from its companies
which it acquired.
� Their main strategy is acquiring and making deals with companies tooffer different solutions to the oil and drilling companies.
National OilWell and Varco merger (2005) expanded product and services.
MERGER SNAPSHOT� $2.5 billion value of the merger
offered 170 million shares.
� NOI get 51% and Varco get 49%
of the Merger
� $40-50 million pretax cost saving
after the merger
� 12% ROI and 130% IC growth
Opportunities�Merger employed together both of the company
genuine assets and help NOV to become a
dominant market leader .
Value Proposition�New Merger Provided unparallel level of quality in� 12% ROI and 130% IC growth
achieved in 2005 after the merger�New Merger Provided unparallel level of quality in
capital equipment, expandable product and
services
Competencies�Merger offered excellent opportunities for the
stockholders, employees and customers of both
companies and positioned better to compete
effectively in global market place.
Grant Prideco Merger (2008)is the catalyst for international expansion.
MERGER SNAPSHOT� $7.5 billion value of cash and
stock merger with Houston based
Grad Prideco
� Combined Market Cap of $32
billion
� 86% of Merger to NOV and 14%
to Grant Pridecco
Opportunities� Merger build a model of synergy for NOV-- a one-stop
shop for all a driller's needs, from derricks to drill bits
Value Proposition� New Merger advances NOV strategic goal of providing
more products and services to Oil Machinery sector.to Grant Pridecco
� 5% increase in EPS in 2008
� $60 million of Pretax Cost savingCompetencies�Merger benefited the stakeholders by creating a larger,
more diversified company that is better positioned to
compete in the global marketplace
http://impeller.net/magazine/news_en/dx9FCz.asphttp://www.getfilings.com/comp/k0001021860.html
http://www.nov.com/Home.aspx
http://finance.mapsofworld.com/merger-acquisition/2005.html
Citations/Bibliography