USA Today – by Adam Shell and Mike Snider
Halliburton (HAL), the second-largest U.S. oil services provider, said Monday it would acquire its smaller rival Baker Hughes (BHI) in a deal valued at $34.6 billion.
The two firms will combine forces in a stock-and-cash deal expected to close in the second half of 2015. The deal values each Baker Hughes share at $78.62.
Pre-market shares in Baker Hughes surged more than 16% to $69.61 on the news and were up 12% to $67.32 after the market opened — still shy of the price Halliburton offered to buy it for. Halliburton’s shares fell 9% to $50.01.
The deal comes amid a sharp dive in oil prices, with a barrel of West Texas Intermediate crude tumbling recently to its lowest level in more than three years, creating both havoc and opportunity for companies whose livelihood is tied to the price of oil. In early morning trading Monday, crude was up 79 cents, or 1%, to $74.97, but still deep in bear-market territory.
Wall Street expects the big drop in oil prices, which has also had a negative impact on the stock prices of companies in the energy sector, to prompt similar deals as companies look to solidify their businesses in an increasingly difficult business environment.
The oil-patch marriage, which was approved unanimously by both boards, comes after weeks of discussions, which were reportedly chilly at times, according to media reports. Halliburton made its first offer to Baker Hughes back on Oct. 11.
The proposed merger, which includes massive cost savings as the companies strip out redundancies, will enable the newly formed entity to navigate a more difficult market environment amid plunging oil prices. The energy market is currently undergoing a period of tumult and transformation, due to the combination of slipping demand caused by economic weakness abroad and abundant supply resulting from a sharp rise in crude production in the U.S.
Dave Lesar, chairman and CEO of Halliburton, said the deal will result in synergy-related annual cost savings of nearly $2 billion. The combination will provide substantial efficiencies of scale and geographic scope. Savings will come from operational improvements, personnel reorganization, real estate, research and development, corporate costs, and other administrative and organizational efficiencies.
Lesar said the acquisition will be accretive to Halliburton’s cash flow by the end of the first year after closing and to earnings per share by the end of the second year.
The combined company “create a bellwether global oilfield services company,” Lesar said in a conference call with analysts. “There is no doubt about the strategic merits of this combination. It is a compelling transaction with many strategic and financial benefits.”
The Halliburton CEO said the transaction combines two highly complementary suites of products and services into a comprehensive offering to oil and natural gas customers. The combined company had 2013 revenues of $51.8 billion, more than 136,000 employees and operations in more than 80 countries around the world.
Under the terms of the agreement, stockholders of Baker Hughes will receive, for each Baker Hughes share, a fixed exchange ratio of 1.12 Halliburton shares plus $19.00 in cash, according to a press release.
The merger is subject to regulatory approvals and could face antitrust questions as the two companies are the second- and third-biggest oil-services companies in the U.S. The industry leader is Schlumberger. To get the deal done, Halliburton has “agreed to divest businesses that generate up to $7.5 billion in revenues, if required by regulators,” although Halliburton believes that the divestitures required will be significantly less.
If the deal is terminated due to the failure to get antitrust approvals, Halliburton has agreed to pay a fee of $3.5 billion.
Baker Hughes Chairman and CEO Martin Craighead acknowledged that the combined larger company would be a stronger company.
“One of the key reasons we are moving forward with this combination is because it will allow us to deliver an even broader range of products and services to meet customers’ increasingly complex oilfield challenges,” he said.
http://www.usatoday.com/story/money/business/2014/11/17/halliburton-baker-hughes/19159313/