Halliburton and Baker Hughes scrap merger
HALLIBURTON and Baker Hughes have called off their $28bn merger that faced stiff resistance from regulators in the US and Europe over antitrust concerns.
A day after the merger was called off, Baker Hughes said yesterday it would buy back shares and debt with the $3.5bn break-up fee it is due this week. The company also said it would cut costs as it focuses on new products for well-drilling and production.
The second- and third-largest oilservice firms had set a deadline for the end of last month to complete the deal or walk away.
“While both companies expected the proposed merger to result in compelling benefits to shareholders, customers and other stakeholders; challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action,” Halliburton chairman Dave Lesar said.
Halliburton announced the Baker Hughes takeover in November 2014 in a bid to better compete against industry leader Schlumberger.
The US justice department filed a lawsuit early last month to stop the merger, saying it threatened to eliminate head-to-head competition in 23 products and services used in oil exploration. Shares of Halliburton and Baker Hughes have declined amid the worst oil slump in a generation, reducing the deal’s value from $34bn when it was announced.
“The companies’ decision to abandon this transaction — which would have left many oil-field service markets in the hands of a duopoly — is a victory for the US economy and for all Americans,” US attorney-general Loretta E Lynch said on Sunday.
Analysts voiced doubts about the deal after Halliburton announced on April 22 that it would delay its firstquarter earnings release to today from April 25.
Houston-based Baker Hughes would buy back shares totalling $1.5bn and debt totalling $1bn, with proceeds of the break-up fee, the company said. It would also refinance its $2.5bn credit facility, which expires in September. The company would focus on well con- struction including drilling services, drill bits and completions, and production services including artificial lift and production chemicals, CEO Martin Craighead said yesterday.
“More than ever, our customers need to lower their costs and maximise production.”
Halliburton sold $7.5bn in notes in November, which built up its cash reserve to a record of more than $10bn — a stockpile that will help cover the $3.5bn fee.
It offered to sell additional assets in February in an effort to appease antitrust concerns.
The price of West Texas Intermediate oil, the US benchmark, has fallen by more than half since the middle of 2014 to about $45 a barrel. The oil business has responded by slashing more than $100bn in spending and cutting more than 250,000 jobs.
A standalone Baker Hughes with $3.5bn in cash from the break-up can rebuild its BJ Services business, cut costs and create a strong technology portfolio that could draw new suitors, J David Anderson, an analyst at Barclays, wrote on April 28 in a note to investors.
Regulatory approvals and general industry conditions … led to the conclusion termination is the best course of action