Halliburton to acquire rival Baker Hughes for $34.6 bn

18 Nov 2014

In a friendly deal oil services giant Halliburton will acquire its rival Baker Hughes for about $34.6 billion, leading to a merged entity worth $67 billion.

Last week Baker Hughes had confirmed it was in merger talks with Halliburton, adding the talks may or may not lead to a deal (See: Halliburton and Baker Hughes in merger talks).

According to the The New York Time,  the union between the two big oil field services providers in a friendly deal comes only days after a hostile takeover battle appeared to be in the works.

The acquisition will lead to annual cost synergies of nearly $2 billion. Halliburton said the acquisition will be accretive to its cash flow by the end of the first year after closing and to earnings per share by the end of the second year. It expects the combined company to "generate significant free cash flow, allowing for the return of substantial capital to stockholders."

Halliburton, which was looking to make acquisitions, is said to have approached Baker Hughes on a potential deal, according to several media reports.

The takeover now faces regulatory scrutiny, as a tie up between the No 2 and No 3 oil services giants will attract antitrust concerns not only in the US, but also in Europe, Brazil and China.

Both are giants in the oilfield services providing services ranging from drilling wells, hydraulic fracturing / fracking, production and reservoir consulting, formation evaluation to pressure pumping.

The deal came following Baker Hughes' announcement on Friday that Halliburton had submitted a list of board nominees after the breakdown of talks between the two companies, indicating the possibility of Halliburton's going hostile if its approach was rebuffed.

With the merger, the two Houston-based companies, could challenge market leader  Schlumberger.

The merger would end the competition between the two decades-old rivals in the oil field service business.

The 1919-founded Halliburton has emerged as 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 had been involved in several prominent events in the industry, including the 2010 Deepwater Horizon oil rig explosion, in which it pleaded guilty to destroying evidence and agreed to pay a large settlement.

Meanwhile in a press release Halliburton said, "The transaction is valued at $78.62 per Baker Hughes share, representing an equity value of $34.6 billion and enterprise value of $38.0 billion, based on Halliburton's closing price on November 12, 2014, the day prior to public confirmation by Baker Hughes that it was in talks with Halliburton regarding a transaction."

Upon the completion of the transaction, Baker Hughes stockholders will own approximately 36 per cent of the combined company. The agreement has been unanimously approved by both companies' Boards of Directors.

On a pro-forma basis the combined company had 2013 revenues of $51.8 billion, more than 136,000 employees and operations in more than 80 countries around the world.

"We are pleased to announce this combination with Baker Hughes, which will create a bellwether global oilfield services company and offer compelling benefits for the stockholders, customers and other stakeholders of Baker Hughes and Halliburton," said Dave Lesar, chairman and chief executive officer of Halliburton.

"The transaction will combine the companies' product and service capabilities to deliver an unsurpassed depth and breadth of solutions to our customers, creating a Houston-based global oilfield services champion, manufacturing and exporting technologies, and creating jobs and serving customers around the globe."

Lesar added, the stockholders of Baker Hughes would immediately receive a substantial premium and have the opportunity to participate in the significant upside potential of the combined company.

Martin Craighead, chairman and CEO of Baker Hughes said, "By combining two great companies that have delivered cutting-edge solutions to customers in the worldwide oil and gas industry for more than a century, we will create a new world of opportunities to advance the development of technologies for our customers.

"We envision a combined company capable of achieving opportunities that neither company would have realized as well - or as quickly - on its own, all while creating exciting new opportunities for employees."