National Oilwell Varco Inc., Houston, (NYSE: NOV) plans to acquire Grant Prideco Inc., Houston, (NYSE: GRP) for approximately $7.4 billion in cash and debt.

National Oilwell will pay $23.20 in cash and 0.4498 share per Grant Prideco share, a 22% premium based on the closing prices on Dec. 14. National Oilwell shareholders will own approximately 86% of the combined company, which will have a market capitalization of approximately $32 billion. National Oilwell will fund the deal from cash on hand and from debt issuings.

National Oilwell president and chief executive Pete Miller says, “We believe Grant Prideco’s product range will add new growing market segments to National Oilwell Varco and benefit our customers’ needs worldwide. We believe this transaction will afford excellent opportunities for the stockholders and customers of both companies.”

Grant Prideco chairman, president and CEO Michael McShane says, “This is a great transaction for our shareholders in which they realize a significant premium and have the opportunity to participate in a larger, more diverse company…The combination with a world-class organization such as National Oilwell Varco will provide better opportunities for continued growth of our product lines and for our employees.”

Goldman, Sachs & Co. is financial advisor to National Oilwell Varco. Credit Suisse Securities (USA) LLC is financial advisor to Grant Prideco.

The merger is not expected to have an impact on Grant Prideco’s pending sale of its tubular businesses to Vallourec SA.

Standard & Poor’s Rating Services has placed National Oilwell’s BBB+ credit rating on CreditWatch with positive implications, and also placed GrantPrideco’s BB+ rating on CreditWatch with positive implications.

S&P credit analyst Aniki Saha-Yannopoulos reports, “Although the transaction is leveraging, given the strength of the market in the near- to medium term, we expect cash flows to be strong and NOV may use them for debt reduction.”

Calyon Securities (USA) Inc. reports the market overreacted resulting in a 10% stock dip and creates an attractive buying opportunity.