Dresser-Rand Group Inc. (NYSE: DRC), an E&P equipment giant and oilfield equipment maker, announced late Sept. 21 it would merge with the German engineering firm Siemens.

Siemens will pay $7.6 billion in a merger agreement, or $83 per share in cash for U.S. equipment maker including assumption of debt.

The share price represents a premium of 37.4% over Dresser-Rand's closing share price of $60.42 on July 16, the day before speculation in the press appeared regarding interest in Dresser-Rand. Months later, Dresser-Rand’s closing price of $79.91 per share on Sept. 19 is slightly below the agreed upon transaction price.

The acquisition complements Siemens' existing offerings, notably for the global oil and gas industry and for distributed power generation.

In 2013 Dresser-Rand generated $3 billion, had 8,100 employees, 14 manufacturing facilities in eight countries and 49 service centers including six engineering and R&D centers.

Siemens plan is to operate Dresser-Rand as the company's oil and gas business, retaining brand name and its executive leadership team. In addition, Siemens intends to maintain a significant presence in Houston, which will be the headquarters location of the oil and gas business of Siemens.

"As the premium brand in the global energy infrastructure markets, Dresser-Rand is a perfect fit for the Siemens portfolio. The combined activities will create a world-class provider for the growing oil and gas markets. With this Dresser-Rand will become 'the oil and gas' company within Siemens and fit right into our Siemens Vision 2020," said Joe Kaeser, president and CEO of Siemens AG.

"After a thorough and competitive process, we are pleased to have reached this agreement with Siemens as it maximizes value and delivers significant benefits to all Dresser-Rand stakeholders," said Vincent R. Volpe Jr., Dresser-Rand's president and CEO. "Dresser-Rand shareholders will receive immediate and certain all-cash consideration for their shares at an attractive premium to the company's unaffected share price."

Mark Brown, senior oilfield services analyst for Global Hunter Securities, said synergies between the companies will be needed to explain deal premium.

The $83 per share price suggests an enterprise value per EBITDA of 12.7x and price-earnings ratio of 25.5x, based on GHS 2015 estimates.

“Other large-cap oilfield manufacturers currently trade in the ranges of 7x-9x on 2015E EV/EBITDA and 11x-16x on 2015E EPS [earnings per share],” Brown said in a report. “We expect that Siemens will extract significant efficiencies from DRC that could significantly improve earnings power and thus result in a lower multiple on a pro forma basis.

“Under the Siemens umbrella, DRC would likely experience less order volatility, more efficient working capital management and greater fixed cost absorption. The integration with Siemens should also accelerate technology development and enhance DRC's suite of rotating equipment product offerings and aftermarket network.”

Siemens’ aim is to become the leading rotating equipment and process system integrator for the oil and gas industry, said Lisa Davis, member of the managing board of Siemens AG.

{C}{C}{C}{C}“Dresser-Rand has strong presence in oil and gas, a reputation for technology leadership and innovation, and a talented and experienced leadership team,” Davis said. “Our intention is to leverage these strengths by maintaining the existing company and brand name and selectively moving complementary products and services from the existing Siemens portfolio into Dresser-Rand enabling us to offer a much broader range of products, services and solutions to meet our customers' needs.”

Just before the deal was announced, On Sept. 17, Swiss pumpmaker Sulzer confirmed that it was engaged in non-exclusive discussions with Dresser-Rand regarding a potential transaction. Sulzer is an oil and gas power pump and turbo machinery business.

The Siemen-DRC transaction is expected to close in the summer of 2015, subject to Dresser-Rand shareholder approval, regulatory approval in the U.S., Europe and other jurisdictions.

Morgan Stanley & Co. LLC and Zaoui & Co. were financial advisors to Dresser-Rand. Wachtell, Lipton, Rosen & Katz and Gibson, Dunn & Crutcher LLP were its legal counsel.