Halliburton Company; market cap (as of 21/11/2014): $43.1bn

Baker Hughes Inc.; market cap (as of 21/11/2014): $27.5bn


On November 17, Halliburton Company, the world’s second biggest oilfield service provider, announced a definitive agreement to acquire Baker Hughes Inc. in a stock and cash deal worth $34.6bn. The transaction is the biggest takeover of a US energy company in three years and is viewed as helping both companies to offset the threat of plunging crude oil prices.

About Halliburton

Halliburton Co. is an American oil field services company with operations in over 80 different countries worldwide employing more than 80,000 people. Halliburton products and services are all derived from the lifecycle of oil production, which begins from locating hydrocarbons, determining the construction and placement of wellbores as well as the optimization of extraction. The company grew its annual revenue in 2013 to a record $29.4bn but now it has been looking to expand its business portfolio and global presence to offset the collapse in global oil prices, which have fallen over 30% since June, as well as to compete thanks to a greater market power, against the current industry leader Schlumberger. “The transaction will combine the companies’ product and service capabilities to deliver an unsurpassed depth and breadth of solutions to our customers”, stated Dave Lesar, Chairman and CEO of Halliburton, who will continue to run the merged company after the acquisition.

About Baker Hughes

Baker Hughes Inc. is a Texas based oil service company that was created in 1987 from the merger of Baker International with Hughes Tool Company. Similar to Halliburton, the company has roughly the same number of employees (ca. 80,000) and a geographical presence in over 80 countries, with $22.4bn revenues in 2013. It currently offers products and services for finding, drilling and extracting oil from reserves. The deal with Halliburton carries a 55% premium to Baker Hughes stock price (pre-rumors) and comes at a time when Baker Hughes and most large oilfield services stocks have fallen dramatically from their 2014 highs, impacted by lower crude oil prices and concerns for upstream capital spending. Baker Hughes’s Chairman and CEO Martin Craighead said, “this brings our stockholders a significant premium and the opportunity to own a meaningful share in a larger, more competitive global company”.

Details of the deal

Baker Hughes’ stockholders will receive a fixed rate of 1.12 Halliburton shares plus $19 in cash, for a total value of $78.62 associated with a premium of $28 to Baker Hughes stock price rumors of the merger (ca. $50.60 per share on November 12). After the official announcement of last Monday Baker’s shares lighted for 10% while Halliburton’s fell 7,5% down. Halliburton intends to finance the cash portion of the acquisition through a combination of cash on hand and fully committed debt financing provided by Bank of America Merrill Lynch and Credit Suisse. The aggregate value of the deal is $34.6bn and represents a 7.2x multiple of Baker Hughes’ consensus EBITDA. It will guarantee to Halliburton’s shareholders approximately 64% of the combined company together with 12 out of the 15 members of the new board. The two oil field companies, given the complementarity in product lines, global presence and cutting-edge technologies, are expected to annually save nearly $2bn in costs, optimizing Research & Development programs and improving organizational efficiencies.

Antitrust concerns

Serious concerns about the proposed takeover derive from the potential reaction of antitrust regulators, since the merger would leave the industry highly concentrated between two large companies: the merged Halliburton and Schlumberger. Nevertheless Mr. Lesar already reassured shareholders – “We are absolutely confident that we’re going to get this thing done”. Meanwhile, to address possible regulatory issues, Halliburton agreed to sell business that generate up to $7.5bn revenues and to pay $3.5bn termination fee to Baker Hughes if the deal fail to clear antitrust review.

Financial advisors

Credit Suisse and Bank of America Merrill Lynch are serving as financial advisor to Halliburton. Goldman Sachs is instead advising Baker Hughes. The deal is expected to close by the end of 2015 being subject to regulatory approval.

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