Baker Hughes and Halliburton, formidable rivals for Schlumberger

Oil field services firms Halliburton Co. and Baker Hughes Inc. announced a definitive agreement under which Halliburton will acquire Baker Hughes in a cash and stock transaction valued at $34.6 bln. Baker Hughes stockholders will receive 1.12 shares of Halliburton stock plus $19 in cash for each Baker Hughes share for a total payment of $78.62 a share. The price is a premium of nearly 41% to Baker Hughes’ closing price on October 10, which a press release notes as the day prior to Halliburton’s initial offer for Baker Hughes. That is a full month before last week’s first report of a possible deal.

Halliburton has agreed to divest businesses that currently generate up to $7.5 bln in annual revenues if required to do so by regulators and also has agreed to pay a $3.5 bln break-up fee if the deal fails to get regulatory approval. The deal is expected to close in the second half of 2015. Baker Hughes stockholders will own about 36% of the surviving company.

The merged company

will

retain

the Halliburton name and the Baker Hughes name will disappear. Halliburton CEO Dave Lesar will continue as chairman and CEO of the surviving firm, and the board of directors will expand to 15, of which three will come from the Baker Hughes board.

The companies noted that 2013 combined pro forma revenues for the two firms is $51.8 bln and that combined they employ 136,000 people.

Halliburton expects the synergies to come from “operational improvements, especially North American margin improvement, personnel reorganisation, real estate, corporate costs, R&D optimisation and other administrative and organisational efficiencies.”

The combined firm will top industry leader Schlumberger Ltd. in revenues, but the combined market cap of Halliburton will still trail Schlumberger and profits will also fall short, at least until the synergies kick in.