Halliburton Into Asset Divestiture Process To Meet The Mega Merger Requirements

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Apr 22, 2015

Halliburton Co. (HAL, Financial) has planned to sell two businesses that could be valued at around $5 billion to seek regulatory approval for the merger. Halliburton has hired Bank of America (BAC, Financial) and Deutsche Bank (DB, Financial) for help with selling the assets. After the $35 billion merger with Texas-based Baker Hughes Inc (BHI, Financial), Halliburton contoured some oilfield services assets that it plans to sell to ease regulators’ concerns.

Selloff equations

Halliburton has asked Bank of America to sell parts of its Sperry drilling business. This business provides offshore and onshore drilling and petro physical engineering services and includes directional drilling, logging while drilling and measuring while drilling. Sperry business is worth about $3 billion and can also generate about $3 billion in revenue every year.

The other business that HAL wants to sell is its drill bits business. Halliburton’s drill bit business includes roller cone bits and fixed cutter bits. Halliburton is seeking Deutsche Bank’s help for selling these assets. These assets can fetch between $1.5 billion to $2 billion.

Houston, Texas-based Halliburton offers a range of equipment, maintenance and engineering and construction services to the energy, industrial and government sectors. Halliburton CEO Dave Lesar said, “Thanks to employees' hard work, these businesses represent strong products and services in the oilfield services industry, and we believe the value inherent in these businesses will be recognized by prospective buyer.” He also said that “they would have preferred to retain these assets, but as they are required to divest some of the overlapping businesses to obtain competition authorities' approvals as anticipated during the Halliburton-Baker Hughes merger.”

The Halliburton-Baker Hughes merger

The two oilfield service providers Baker Hughes Inc. and Halliburton Co. announced a $35 billion merger process in November last year to cope with the weak oil prices. Baker Hughes Inc. is a smaller rival to HAL. Despite the increase in market share, the tie-up of the two companies is about half the size of the market leader Schlumberger (SLB, Financial). The deal faced a close watch from the Department of Justice (DOJ) as the two companies had overlapping business units in United States, Europe and Asia. Halliburton had previously announced that it was willing to divest assets worth about $7.5 billion to support the merger. The deal is expected to close in the second half of 2015 and remains subject to regulatory approvals. Goldman Sachs (GS, Financial) advised Baker Hughes Inc. for the deal.

Credit Suisse (CS, Financial) helped Halliburton with the merger and is also the global co-coordinator for all the divestitures and will be present in all the auctions. Halliburton's and Baker Hughes' advisors considered the steps necessary for regulatory approval, and Halliburton and Baker Hughes are committed to consummating this deal. Halliburton is in talks with federal antitrust regulators about other possible divestitures. Once the regulators determine which assets are to be divested, investment banking mandates are expected to be awarded for Halliburton's cementing and well-completion businesses in next two months. It is important to know that Halliburton’s main reason for the divestitures is to facilitate the merger with Baker Hughes.

The outlook

A lot of HAL’s clients have postponed or stopped drilling projects in the last few months due to the low oil prices and this could affect the value of assets for sale. Halliburton, Credit Suisse, Bank of America and Deutsche Bank declined to comment on the sale.