On Monday, November 17th Halliburton Co. declared that it will take over Baker Hughes Inc. The purchase will involve Halliburton paying around $35 billion in cash & stock. The deal will create a giant in oilfield services that will take Schlumberger down, which is the current leader in the market.
Halliburton is confident about the purchase and said that the merger of two companies will overcome regulatory hurdles by molting assets to soothe antitrust issues that could emerge in the continents of Asia, Europe and America.
This deal is this year’s second largest of its sort in the U.S energy department and is likely to produce a company that can gather more revenues than Schlumberger. The oil prices have been down since June and as a result the market for drilling services has dropped resulting in the decline of stock prices across the energy sector. Dave Lesar, the Chief Executive of Halliburton said that the two companies together will be more effective and will be able to offer more products to the global market.
Lesar told Reuters that being stronger is better in any market condition. He also said that Halliburton is all set to start business that will generate revenue of $7.5 billion, which will mollify regulators. The company will have to pay $3.5 billion to Bakers Hughes in case the deal does not get cleared. Lesar said that the company would not have gone ahead with the deal if it didn’t think that its targets or expectations were achievable.
Although the shares of Baker Hughes were trading low and the conditions were not favourable for the investors yet Halliburton did not pay any heed to that. According to Kurt Hallead the chances of the deal between Bakers Hughes and Halliburton to go down are very low. Hallead is an analyst in oilfield services at RBC Capital Markets.
The two Huston based companies will make a prominent front in the U.S onshore services and will add more to Halliburton’s portfolio.
On Monday the shares of Bakers Hughes went up by, 11% ($66.44), which is significantly lower than Halliburton’s offer of $80.69, which was established on Friday’s close.
Halliburton’s shares went down by 8% ($50.60). On the other hand Schlumberger shares went up by 0.6% at $95.85.
The two companies were involved in negotiations for over a month; however the talks finally came to a conclusion on Friday with the merger of the two companies. Baker Hughes will get 3 seats on the 15-member board of the combined company. The shareholders of Baker Hughes will get 1.12 Halliburton shares as well as $19 in cash for every share held. Along with that Baker Hughes will own 36% of the combined company. The revenues generated by the two companies in 2013, if combined would be $51.8 billion, which is more than the revenues generated by Schlumberger that were $45.3 billion.
The revenues of the combined company’s might leave the revenues of Schlumberger behind but the market capitalization of Schlumberger is about twice the market cap of both companies combined. Schlumberger has a market cap of $122.6 billion, which will be really hard for the combined companies to beat.