Baker Hughes (BHI) and Halliburton Terminate $28B Merger

Shares of Baker Hughes Inc. (BHI) were trading down -0.62 or -1.28 percent to $47.74 per share in Monday’s premarket after yesterday’s announcement of the termination of its agreement to merge with rival Halliburton (HAL). The companies cited opposition from U.S. and European antitrust regulators as the main reason for the deal’s cancellation.

Baker Hughes stock closed at $48.36, up +0.50 or +1.04 percent in Friday’s regular trading session.

Stock Analysis

Houston, Texas based Baker Hughes Inc. is a combination of two innovative oil services companies: The Hughes Tool Company and Baker International, which merged in 1987. The company is one of the world’s largest oilfield services providers, operating in more than 80 countries and employing over 39,000 people worldwide. Baker Hughes provides the oil and gas industries with drilling, production, formation evaluation and reservoir consulting services.

Founded in 1919, the Halliburton Company dually based in Houston and Dubai, is another of the world’s largest oil field service companies, with operations in over 80 countries through a myriad of subsidiaries, branches and affiliates. The company employs over 55,000 people and services the oil and gas industries throughout the lifecycle of the reservoir, from the management of geological data, to drilling, construction and completion.

The transaction, originally announced in late November of 2014 was for a combination of cash and stock and valued at approximately $34.6 billion at its inception, but has since declined to $28 billion, in part due to the drastic slide in the price of crude oil. The contract governing the transaction expired on Saturday without any agreement to extend it.

The combination of the Baker and Halliburton would have joined the number two and three largest oil services companies. The merger raised concerns among regulators that prices for the sector would increase, effectively leaving the industry at the hands of a duopoly consisting of number one company, Schlumberger (SLB) and the combined Halliburton/Baker.

Martin Craighead, Chairman and Chief Executive Officer of Baker Hughes noted in a joint press release yesterday that, “This was an extremely complex, global transaction and, ultimately, a solution could not be found to satisfy the antitrust concerns of regulators, both in the United States and abroad. As we turn the page on this chapter, I want to thank our customers for their patience and continued loyalty over the past 18 months. I also want to thank the entire Baker Hughes team for their unwavering dedication and commitment during this process. Baker Hughes is strongly positioned to build on its foundation and heritage as a technology innovator that differentiates for our customers and delivers compelling value to shareholders.”

Last month, the U.S. Justice Department filed a lawsuit to prevent the merger, citing concerns that technology businesses divested as a result of the merger would go to small companies incapable of effectively competing with the two leaders. In addition, the two leaders would have less incentive for innovation, according to the Justice Department.

In a statement released yesterday, U.S. Attorney General Loretta Lynch said that, “The companies' decision to abandon this transaction – which would have left many oilfield service markets in the hands of a duopoly – is a victory for the U.S. economy and for all Americans”.

Baker Hughes will receive a $3.5 billion break-up fee from Halliburton by Wednesday as a result of the deal falling through. The market is reacting, or rather not reacting to the news; with Baker Hughes stock unchanged and Halliburton stock up a fraction in this morning’s premarket.

Other News About BHI

Baker Hughes lays out buybacks, cost cuts after Halliburton deal dies

Baker Hughes will buy back its shares, liquidate debt, cut $500 million in costs and restructure its business.

Halliburton and Baker Hughes left to review their options

Financial Times article on the outlook for both companies in light of the merger collapsing.

Other Stocks in the News


SeaDrill stock rose +17 percent on Friday.

Marriott spent $10M in Q1 on a merger that almost fell through

According to the company’s latest SEC filings, it spent $10 million before knowing whether the deal  with Starwood Hotels and Resorts would go through.

Published on May 2, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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