26% Annual Return And Halliburton
Chris DeMuth Jr. • 44 Comments
Chris DeMuth Jr. • 44 Comments
Mon, Oct. 31, 10:30 AM
- Baker Hughes (BHI -1%) erases opening gains to trade in the red, while General Electric (GE +0.9%) is higher amid plans to combine their oil and gas operations.
- The new company will be 62.5% owned by GE, with GE Oil & Gas CEO Lorenzo Simonelli serving as President and CEO; GE will fund a special one-time cash dividend of $17.50/share, or $7.4B, to existing BHI shareholders, who will own 37.5% of the new company.
- The deal creates a company with more than $32B in FY 2015 revenue that could cut costs to better compete with rivals such as Schlumberger (SLB -0.9%) to provide equipment and services to oil rigs and wells; the $32B combined revenue places the new company only 8%-9% behind SLB.
- The combined companies expect to generate $1.6B of synergies by 2020, primarily driven by cost savings; GE expects the deal to be accretive to 2018 EPS by $0.04 and 2020 EPS by $0.08.
- Analysts see a high likelihood of the deal's completion given little product overlap outside of the Artificial Lift business and the relatively smaller size of the deal vs. the rejected Halliburton-Baker Hughes (HAL -0.5%) tie-up.
- Moody’s, Fitch and S&P all affirmed GE’s credit ratings with stable outlooks following the announcement.
Mon, May 2, 2:08 AM
- Following opposition from U.S. and European antitrust regulators, Halliburton (NYSE:HAL) has officially abandoned its pursuit of rival Baker Hughes (NYSE:BHI), leaving it to pay a $3.5B breakup fee as a result of the deal falling apart.
- The cash-and-stock acquisition - valued at $34.6B when it was announced in November 2014, and now worth about $28B - would have brought together the world's No. 2 and No. 3 oil services companies, raising concerns about higher prices in the sector.
- Previously: Halliburton is calling off its $28B takeover of Baker Hughes (May. 01 2016)
Wed, Apr. 27, 2:24 PM
- Baker Hughes (BHI +2.5%) shares shook off early losses and have since racked up solid gains despite reporting worse than expected Q1 earnings.
- Citi’s Scott Gruber reiterates a Buy rating and $53 price target, saying Q1 results should have only a modestly negative impact given the potential restructuring to come following the likely end of Halliburton’s (HAL +2.1%) pursuit of the company; Gruber continues to like BHI’s balance sheet, restructuring potential, share buyback potential and take-out potential.
- BHI says the terms of the merger agreement required it to retain certain expenses, which limited its ability to cut costs in Q1 and hurt operating margins, costs which Cowen analysts note would go away soon if the merger deal breaks.
- Stephens analyst Matthew Marietta is more cautious, putting his Overweight rating and price target under review.
Tue, Apr. 26, 2:59 PM
- Even if the merger of Halliburton (HAL -0.2%) and Baker Hughes (BHI +0.9%) falls apart, Citi’s Scott Gruber and his team are confident that both will be fine, reiterating Buy ratings on both stocks.
- BHI still has its technology advantage, the firm says - recalling that HAL wants BHI’s directional drilling, bits, artificial lift and chemicals while their completion products are strong - and although morale may have suffered in the run-up to a merger, the staff largely remains.
- BHI also should have $5B of cash on its balance sheet by the end of Q3 in the absence of a merger, which it could use to “upgrade their frac segment, attract new talent and execute a large buyback.”
- Citi says HAL remains its favorite name given its leadership position in shale services, and the firm believes the shale service recovery should surprise positively and HAL's free cash flow should structurally improve.
- Now read Halliburton-Baker Hughes deal probably dead, analysts say
Mon, Apr. 25, 10:16 AM
- Analysts say Halliburton's (HAL -0.1%) postponement of its Q1 earnings report until May 3 likely means its merger agreement with Baker Hughes (BHI -0.8%) will be terminated.
- Baird's Daniel Leben says that while HAL did not explicitly state in its Friday pre-announcement of Q1 revenues that the deal was off, the decision to delay its conference call and its move away from maintaining greater-than-required operational capacity are "signs the BHI deal will break after April 30."
- Jefferies analyst Brad Handler concurs, adding that investors largely expected the outcome once the Justice Department filed its suit to block the merger in early April and thus expects limited share price reaction.
- Baird reiterates its Neutral rating and $38 price target on HAL, and Jefferies maintains its Buy rating and $43 target price.
- Now read 'Life has changed' for Halliburton
Wed, Apr. 20, 11:29 AM
- Halliburton’s (HAL +0.6%) bid to buy Baker Hughes (BHI -0.9%) faces a formal complaint as soon as this month from European Union regulators through a statement of objections that would list concerns about how the deal would hurt competition throughout the EU, Bloomberg reports.
- HAL’s plans have been stalled repeatedly by the EU as regulators seek more information about the deal; last week, the EU set a new deadline of Aug. 11 for a final ruling on the merger.
- The deal already faces opposition from the U.S. Justice Department, which has sued to block the deal saying it threatens to eliminate head-to-head competition in 23 products and services used in oil exploration.
- Now read Halliburton: $3.5 billion break-up fee... ouch!
Wed, Apr. 20, 10:33 AM
- With the chances of a Halliburton (HAL -0.4%) takeover dimming as the Justice Department files suit, Baker Hughes (BHI -0.1%) ought to consider a merger of equals with National Oilwell Varco (NOV -2.4%) as “the best route to value creation over the next cycle,” according to J.P. Morgan analyst Sean Meakim.
- A BHI-NOV merger would be more than a marriage of convenience, Meakim says, adding that “neither side needs a transaction from a balance sheet perspective, but each could benefit strategically” and a deal would not face significant regulatory hurdles.
- The agreement between BHI and HAL is scheduled to expire on April 30, but Meakim points out that the merger deal is not dead, and HAL likely will to fight hard to find a path to deal completion and avoid the $3.5B breakup fee.
- The firm rates BHI at Neutral with a $36 price target.
- Now read Why shares of National Oilwell Varco will likely go down
Thu, Apr. 14, 2:57 PM
- P-E firm Carlyle Group (CG -1%) is in serious talks to buy oilfield services assets from Halliburton (HAL -0.4%) and Baker Hughes (BHI +5.2%) that could be valued at more than $7B, Dow Jones reports.
- The talks would mark a shift for HAL and BHI, which have focused on overcoming Justice Department objections to their planned merger by attempting to sell the assets to General Electric (GE +0.1%); GE remains in the mix, but reaching agreement on a price for the assets has been difficult, according to the report.
- The need for HAL and BHI to strike a divestiture deal took on increased urgency last week when the DoJ filed an antitrust lawsuit challenging their proposed $35B merger.
- Now read The Halliburton-Baker Hughes merger is falling apart - what happens next?
Tue, Apr. 12, 6:19 AM
- EU competition regulators have resumed their scrutiny of Halliburton's (NYSE:HAL) plan to acquire smaller rival Baker Hughes (NYSE:BHI), a deal which U.S. authorities say is uncompetitive and want to block.
- The European Commission, which halted its investigation into the $35B deal last month while waiting for more details from the companies, will now decide by Aug. 11 whether to clear or veto the takeover.
Fri, Apr. 8, 1:45 PM
- Analysts are split on Baker Hughes' (BHI +4.3%) future if its merger with Halliburton (HAL +4.4%) fails, but Jefferies squarely comes down on the side of pessimism, downgrading BHI to Underperform from Buy while saying the DoJ lawsuit and scrutiny from other world regulators make the acquisition very unlikely.
- The DoJ lawsuit is "daunting," Jefferies says, and even if HAL-BHI prevails, the merger may be unable to clear regulatory resistance elsewhere in the world, and an aggressive share buyback or quick acquisition by another company is not likely.
- Analysts at Wells Fargo, Citigroup and FBR are among those still optimistic toward BHI even without a tie-up, but Deutsche Bank, Evercore ISI and Jefferies not so much (I, II, III, IV).
- Now read Including a $3.5 billion breakup fee, Baker Hughes is worth $20
Thu, Apr. 7, 3:33 PM
- Halliburton (HAL -0.6%) and Baker Hughes (BHI -1.8%) are lower today in the wake of yesterday's DoJ decision to block their proposed merger, when both stocks rose in an oil price surge-fueled group rally.
- Even with much lower odds of closing, FBR analysts still like BHI's risk/reward - if the deal fails, BHI would benefit from the $3.5B breakup fee, with the ability to fully implement restructuring initiatives that have been constrained by the merger deal; if the deal succeeds, FBR believes the stock will deliver a 40% return, all else constant, within 3-4 months.
- FBR also thinks any "Hail Mary” solution likely still relies on GE (GE -0.9%), and believes GE is the “prospective buyer” with whom HAL has had “lengthy discussions.”
- Now read Baker Hughes a Buy if Halliburton deal folds, Wells Fargo says and Baker Hughes downgraded at Deutsche Bank, as deal close "a coin flip at best"
Wed, Apr. 6, 10:42 AM
- Baker Hughes (BHI +5.3%) is downgraded to Hold from Buy with a $43 price target, cut from $78, at Deutsche Bank, which expects shares to remain relatively range bound during any litigation process concerning the Halliburton (HAL +4.8%) merger.
- Although BHI and HAL will have a strong case to fight the DoJ lawsuit, the odds of the merger closing are "a coin flip at best," Deutsche Bank says
- The firm lowers its 2016 EPS estimate for BHI to a $0.42 loss from its earlier outlook for a $0.37 loss, and cuts its 2017 EPS estimate to $1.20 from $1.60, citing challenges BHI would face as a stand-alone company.
- Deutsche Bank maintains a Buy rating on HAL while lowering its price target to $40 from $53, as the company likely would be on "extremely strong footing” even if the deal falls through
- "If anything, the lack of distractions after well over a year of merger related activities as well as investors currently on the sidelines coming in could actually benefit [HAL] in the short-term,” the firm says.
- Now read It's official: DoJ files lawsuit to block Halliburton from buying Baker Hughes
Wed, Apr. 6, 10:12 AM
- Halliburton (HAL +5.2%) and Baker Hughes (BHI +5.2%) move higher following official news that the U.S. Justice Department has filed a civil antitrust suit seeking to block their $35B merger deal, confirming earlier reports.
- The DoJ alleges the HAL-BHI merger, which would combine the no. 2 and no. 3 oil services companies, threatens to eliminate competition, raise prices and reduce innovation in the oilfield services industry.
- The companies say they will "vigorously contest" the DoJ action, and that the combination would provide customers with access to high quality and more efficient products and services, and an opportunity to reduce their cost per boe.
- Now read Halliburton: ValueAct really is the mullet
Tue, Apr. 5, 2:25 PM
- Baker Hughes (BHI -5.5%) sinks to its lows of the day before rebounding a bit following media reports that the Justice Department is poised to file a lawsuit to stop its merger with Halliburton (HAL +1%).
- Bloomberg says the DoJ plans to file the lawsuit as soon as this week, claiming it violates antitrust laws by eliminating competition between the firms.
- Analysts at Evercore ISI say BHI shares could fall into the low $30s if the deal breaks apart, citing employee turnover, the cannibalization of its equipment at the onset of the downturn, and general disorder within the company that would cause revenue growth and margin improvement at a standalone BHI to lag its peers when the upcycle resumes.
- The government’s view of the deal appears to have been previewed yesterday in a court filing when the DoJ said the merger "threatens to substantially lessen competition in numerous markets."
- Now read Halliburton: Beware
Mon, Apr. 4, 2:19 PM
- The Justice Department files a civil suit against the ValueAct Capital Management hedge fund for failing to tell the U.S. government about more than $2.5B in stock purchases in Halliburton (HAL -3%) and Baker Hughes (BHI -5.5%) after the oil companies announced their $35B planned merger in 2014.
- The DoJ says ValueAct's purchase was a pre-merger notification violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with the intent to influence the companies business decisions.
- The violation “allowed ValueAct to become one of the largest shareholders of both Halliburton and Baker Hughes, without providing the government its statutory right to notice and prior review of the stock purchases,” the DoJ says.
- Now read NY Post: DoJ leaning against Halliburton-Baker Hughes deal
Mon, Apr. 4, 8:53 AM
- Baker Hughes (NYSE:BHI) -2.2% premarket following a NY Post report that Halliburton (NYSE:HAL) is making a last-ditch bid to save their proposed merger but the Justice Department is leaning against it.
- The DoJ has not made a final decision on whether to file a lawsuit to block the deal, but it could announce its opposition as soon as this week's American Bar Association annual antitrust conference in Washington, according to the report.
- HAL is on the hook to pay a $3.5B break-up fee to BHI if the deal falls apart; BHI also could walk away from the deal at the end of April - and might do so - to collect the fee if the DoJ does not act by that time, the report says.
- Regulators reportedly have asked HAL to sell assets with ~$10B in revenue, which it is struggling to do after the collapse in oil prices; GE is said to be the only company willing to buy some of the assets, with Weatherford (NYSE:WFT) out of the bidding.
- Now read Halliburton and Baker Hughes: Is it time to cut losses?