[BREAKING NEWS] Halliburton and Baker Hughes Agree to Friendly $34.6 Billion Merger
Halliburton agreed on Monday to buy its rival Baker Hughes for about $34.6 billion, uniting two big oil field services providers in a friendly deal only days after a hostile takeover battle appeared to be brewing.
But the tie-up raises questions about whether the takeover will survive antitrust scrutiny, given the level of consolidation that it promises within the oil production services business.
The deal came after an announcement by Baker Hughes on Friday that Halliburton had submitted a list of board nominees after talks between the two companies broke down. Halliburton’s submission suggested that it was willing to go hostile if rebuffed.
A merger would help the two companies, both based in Houston, compete better against Schlumberger, which is by far the leader in oil field services.
Combining the two companies would merge two decades-old competitors in the oil field services business. Halliburton was founded in 1919, and has since become one of the leading suppliers of equipment for hydraulic fracturing, better known as fracking — the drilling technique underpinning the American energy boom.
Over the years, Halliburton has been involved in several prominent events in the industry. It pleaded guilty to destroying evidence and agreed to pay a large settlement over losses suffered from the 2010 Deepwater Horizon oil rig explosion. Former Vice President Dick Cheney served as chairman and chief executive of the company for a number of years, and it and its subsidiaries were involved with rebuilding contracts in Iraq after the gulf war.
Baker Hughes was created in 1987 with the union of Baker International and the Hughes Tool Company, both of which date back to the early 20th century. Among the products that the company’s predecessors created is a rotary bit for drilling wells through rock.
The combined company will keep the Halliburton name and will be led by David J. Lesar, the current chairman and chief executive of Halliburton.
Together, the two are expected to save nearly $2 billion in costs through a combination of operations and research and development.
Halliburton and Baker Hughes began discussions in mid-October, during a steep drop in crude oil prices driven by the boom in domestic energy production. Investors have worried that the two companies would face pressure from oil and natural gas producers to lower prices, reducing profit margins.
Yet during negotiations, Halliburton initially declined to raise its initial bid or commit to paying a termination fee if the deal could not clear regulatory review, according to correspondence released by Baker Hughes last week. The two appeared to hit an impasse by midweek, prompting Halliburton to threaten an effort to oust the entire Baker Hughes board as a way to restart discussions.
After those details emerged in public, however, the two sides resumed negotiations, with Halliburton eventually raising its bid.
"Each of us has negotiated hard for the best deal for our shareholders," Mr. Lesar said on a call with analysts.
Under the terms of the transaction, Halliburton will pay 1.12 of its shares and $19 in cash for each Baker Hughes share. That offer was valued at about $78.62 a share on Nov. 12, the day before news of their discussions became public.
With the friendly deal reached on Monday, Halliburton has withdrawn its director nominees. Shareholders of Baker Hughes will own about 36 percent of the combined company.
A major question about the proposed takeover will be the reaction of antitrust regulators. To that end, Halliburton has agreed to sell off businesses that generate up to $7.5 billion in revenue to appease the federal government. Mr. Lesar told analysts on Monday that his team and its advisers had already begun to identify potential buyers for any operations that would need to be sold.
Halliburton will also have to pay a larger-than-average $3.5 billion breakup fee if the transaction fails to win the requisite antitrust approvals.
Analysts appeared supportive of the deal — with a few saying so in a conference call with the chief executives of both companies Monday morning. "It’s actually rare that you see a transaction that makes this much sense happen," Ole Slorer, an analyst at Morgan Stanley, said on the call.
And James Crandell of Cowen & Company said, "I think it’s kind of obvious this is a great deal," though he followed up with a question about whether the proposed deal would pass regulatory scrutiny.
Investors appeared split on those prospects. Shares of Baker Hughes closed up about 9 percent on Monday. Halliburton shares were down more than 10 percent, as its shareholders appeared concerned about the price of the transaction and the size of the breakup fee.
Credit Suisse is serving as lead financial adviser to Halliburton, while Bank of America Merrill Lynch and the law firms Baker Botts and Wachtell, Lipton, Rosen & Katz are also advising the company.
Goldman Sachs and the law firms Davis Polk & Wardwell and Wilmer Cutler Pickering Hale & Dorr are advising Baker Hughes.