Once hostile, the top two oilfield services firms Baker Hughes Inc (BHI, Financial) and Halliburton (HAL, Financial) have come to agreement on a merger. The deal is yet to clear the regulatory approval which will take the merger into its final stages. Currently, the shareholders of both the companies have agreed upon the merger which is valued worth $35 billion.
Let’s quickly check the facts that have been shared with regard to the progress made in creating a combined entity.
The merger highlights
After Baker Hughes shareholders voted in favor of the merger’s approval, Halliburton shareholders too approved the issuance of shares needed to fulfil the transaction having value worth around $ 35 billion. Almost a total of 98% of the shareholders voted in favor of the deal at Baker Hughes which equals to about 75% of the company’s outstanding shares. On the other hand, 99% of Halliburton’s shareholders favored the merger in the company meeting. After obtaining due approval from the anti-trust regulators, the deal will stand closed by the end of 2015. The major headwind coming in the way of getting the approval is the companies’ intermingling business units in the United States of America, Europe and Asia. On being questioned by the U.S. antitrust regulators on this matter, Halliburton has agreed upon divesting businesses that generate up to $7.5 billion as revenue.
Both the companies have been in talks since November 2014 with regard to the merger, and they aim to bring down their competitor and market leader Schlumberger NV (SLB, Financial) by providing over the board oilfield services together. As of now, Schlumberger is the undefeated market leader with a market cap of $122.6 billion, whereas Halliburton doesn’t even fall close with a market share of $47.65 billion. This is one more reason being anticipated for the takeover of Baker Hughes whose market cap is $26.6 billion which will now be a part of Halliburton. This merger will bring Halliburton closer in competition with Schlumberger.
The current scenario of the oil industry has led them to join hands. Both the companies are overwhelmed with this long pending merger and look forward to working together in favor of both the companies, their stockholders, customers and employees alike. The merger will also save costs up to $2 billion for both the oil-drilling companies.
The past hurdles in the merger
The 2014 acquisition of Baker Hughes by Halliburton wasn’t quite friendly. The company had abruptly announced the takeover without any prior notice. After much ado, on November 17, 2014, Halliburton was finally able to acquire the outstanding shares of Baker Hughes. Halliburton’s aim behind this acquisition was to increase its shareholder’s value. By this merger, the company hopes to increase its cash flow and in turn improve its earnings.
However, there still exist a few hurdles that are pending to get cleared with regard to the merger. First, the regulatory hurdles have to be dealt with, the most important hurdle governing the merger. After this merger, the combined company will become a key player in the onshore drilling equipment and services industry for which it needs serious scrutiny from the U.S. department of Justice (DOJ).
Second, Halliburton might have to sell assets in the Gulf of Mexico operations and its “Logging while drilling” equipment business. Third, the breakup fee of $3.5 billion which Halliburton has agreed to pay if the transaction terminates due to failure in getting antitrust approvals is almost three times the size of a typical one.
Despite all these facts that need serious reconsideration, Halliburton is still confident about the merger and hopes to convert all the negatives into positives.
Conclusion
It is believed that Halliburton will begin to line up buyers for the spinoff of its businesses by late April or early May. Rumors are stating that the merger happened due to the decline in oil prices in the past year. After the acquisition of Baker Hughes by Halliburton at $35 billion last year, both companies together now promise to become a more diverse and stronger organization after the merger completion to challenge the market leader, Schlumberger, in the long run.
