Two rival oil companies, Halliburton (HAL, Financial) and Baker Hughes (BHI, Financial), have been in the news since last November when it was announced that the latter would be acquired by the former in a transaction that was valued close to $35 billion. However, there were hurdles that needed to be taken care of before the mega-merger deal really took off. One important aspect that has been in the discussion since November last year was the approval being sought from either of the companies’ shareholders that was pending at that point. But now the green signal has been obtained from the shareholders and this is a huge step towards the final completion of the merger by the later part of the year. Let’s dig deeper and find out what’s happening around the destined merger in the past few days.
The long-awaited shareholders’ approval comes in
Analysts worldwide were speculating whether the merger of these two powerful oil companies would see the light of the day, especially as the shareholders’ disapproval could take it in a different direction. However it was being expected that if the merger took a positive turn, the merged entity could as well offer competition to the largest industry player Schlumberger (SLB, Financial) in a market where global presence and technological capability have been the key areas governing the success of the oil field companies.
On March 27, shareholders of the companies separately voted to approve the merger between the rival oilfield services companies bringing the $35 billion deal closer to completion. While the shareholders of Halliburton approved the issue of shares worth $35 billion for the merger, the shareholders of Baker Hughes voted to approve the acquisition deal.
For the Houston-based Baker Hughes, 98% of the votes came in favor of this mega merger deal, and notably this represents more than 75% of the company’s outstanding shares. Nearly 99% of the shareholders voted for the deal in the special meeting held by Halliburton. Dave Lesar, CEO of Halliburton, responded, “We are extremely pleased Halliburton and Baker Hughes stockholders have shown overwhelming support by approving the pending transaction. … We are more confident than ever that this combination will create a stronger, more diverse organization with an unsurpassed depth and breadth of services benefitting our stockholders, customers, employees and other key stakeholders of both companies.”
Benefiting both oil companies in the long run
As the customers are reducing their upstream spending, this merger would help both the companies concentrate in growing their downstream services. It would also help in creating a global leader in the oilfield services segment that could improve returns to shareholders and offer better benefits to their customers in the long run.
Last month, antitrust regulators asked for more information on the deal from both the companies, as the two oil majors enjoy several overlapping business units in the U.S., Europe and Asia. However, Halliburton has already promised to divest any such business units which generate combined revenue of $7.5 billion for obtaining the regulatory approval that is still on its cards.
With the declining oil prices, the merger would aid to insulate both companies from any pullback in drilling services and could help them to keep their prices higher than what they could have kept as individual entities to compete with the decline in oil demand. Moreover, on a revenue basis, the combined entity would become the world’s largest oil drilling company surpassing the Texas-based Schlumberger.
Parting thoughts
Though the regulatory approval for the merger is still pending, analysts and investors are confident that this would go through smoothly in the days to come. Let’s wait and watch for the merger to get finally completed, after which the core benefits would be reaped by both the oil field companies.
