Nov. 17, 2014, 7:11 PM
- The 56% premium Halliburton (NYSE:HAL) is paying for Baker Hughes (NYSE:BHI) is the largest of any merger in the past two decades worth more than $20B that targeted a U.S. company, so it’s little wonder that HAL shareholders sent the stock plunging 10% today even as most analysts reacted favorably to the deal.
- For HAL investors, the deal’s benefits will have to come from the stock being rewarded with a higher multiple down the line, as the bigger company shows it can compete more effectively; with antitrust scrutiny and falling oil prices to navigate first, that's going to take a while.
- BHI’ shares closed near $65, ~17% below HAL’s offer, with tells S&P Capital that the market views antitrust hurdles as significant; if the deal goes through, the merged firm and Schlumberger (NYSE:SLB) combined could have 70%-90% of the market in some service areas, according to the American Antitrust Institute.
- Even if the two companies can close the deal and find the promised $2B/year in cost synergies, analysts are still concerned about volatile commodity prices; also, "market share losses and execution challenges have plagued [HAL] in the past and could be an overhang going forward," a Susquehanna analyst says.
Nov. 17, 2014, 3:59 PM
- In the wake of Halliburton's (NYSE:HAL) $34.6B offer for Baker Hughes (NYSE:BHI), it appears the next hot sector for M&A action is energy: More consolidation is likely, given the weakness for stocks in the oilfield services subsector, low interest rates, and as a drop in demand for oil increases cutthroat pricing competition.
- Speculation is running rampant as investors try to figure out who is next in an industry that is sure to undergo some more consolidation; some names identified as possible candidates include Kodiak Oil and Gas (NYSE:KOG), Marathon Oil (NYSE:MRO), Northern Oil and Gas (NYSEMKT:NOG), Anadarko Petroleum (NYSE:APC), Pioneer Natural Resources (NYSE:PXD).
- GE could go after National Oilwell Varco (NYSE:NOV) to show it is serious about the energy industry after last year’s purchase of pumpmaker Lufkin, Royal Bank of Canada says, and Oppenheimer says even BP could be an acquisition candidate.
- But Morgan Stanley does not see offshore drillers getting in on the action, as larger players like Diamond Offshore (NYSE:DO), Transocean (NYSE:RIG) and Seadrill (NYSE:SDRL) are still addressing dividend concerns while smaller companies such as Atwood Oceanics (NYSE:ATW) and Pacific Drilling (NYSE:PACD) still trade close to replacement value.
Nov. 17, 2014, 12:58 PM
- Halliburton (HAL -9.8%) must pay a $3.5B breakup fee if its deal for Baker Hughes (BHI +10.3%) falls through, ~10% of the $34.6B deal value, far higher than the usual ~4% paid by U.S. acquirers this year, according to data compiled by Bloomberg.
- The fee could be viewed as a barometer of the regulatory risk HAL faces, but it is also a sign that HAL is confident it will successfully navigate that risk.
- Once combined, HAL and BHI would dominate the $25B U.S. market for onshore fracking, and unseat rival Schlumberger (SLB +0.6%) in several key lines of business.
- Investors may be misreading the situation, says FBN Securities' head of merger arbitrage Kathy Renck, who believes a 10% breakup fee is not out of line in a situation with known antitrust issues.
Nov. 17, 2014, 10:39 AM
- Halliburton (HAL -7.2%) and Baker Hughes (BHI +12.7%) say they have already identified several potential buyers for the businesses they may have to sell off amid antitrust issues, as the two oil services companies agree to a $34.6B deal.
- In a conference call this morning, HAL CFO Mark McCollum said the company is looking at divesting businesses with up to $7.5B in revenue, but said the company doesn’t believe the sales will hurt the financial benefits of the deal.
- CEO Dave Lesar said the deal will boost HAL’s capabilities and technology offerings in unconventional shale plays, in deepwater oil fields and in mature fields, and BHI's deepwater technology aimed at spotting oil through thick rock will help expand market share.
- The companies said they see $2B in annual cost synergies, mostly from operational improvements in North America.
Nov. 17, 2014, 9:15 AM
Nov. 17, 2014, 6:59 AM
- The stock and cash agreement for $34.6B values Baker Hughes (NYSE:BHI) at $78,62 per share as of the close prices on November 12 (the day before news broke of a possible deal). Baker Hughes owners will receive $19 in cash plus 1.12 Halliburton shares for each share of BHI they own.
- Upon closing, Baker Hughes stockholders will own about 36% of the combined company.
- Halliburton expects annual cost synergies of nearly $2B, and that the purchase will be accretive to cash flow by the end of the first year after closing, and accretive to EPS by the end of year two. The deal is expected to be consummated in 2015 H2.
- A conference call to discuss is set for 8 ET.
- Source: Press Release
- Previously: Halliburton goes hostile on Baker Hughes
- BHI +16.1% premarket to $69.50, HAL -2.4% to $53.75
Nov. 14, 2014, 9:26 PM
- With merger talks stalled, and today being the deadline to nominate directors for next year, Halliburton (NYSE:HAL) has informed Baker Hughes (NYSE:BHI) of its intention to try and throw out the entire Baker Hughes board at the April 2015 annual meeting.
- Baker Hughes Chairman and CEO Martin Craighead: "Baker Hughes believes that Halliburton's various attempts at coercive tactics, instead of being willing to negotiate a reasonable value for the Company's stock and despite having stated twice that they have room to increase the value of their offer, are attempts to control both sides of a negotiation and are entirely inappropriate."
- Source: Press Release
- Previously: Report: Halliburton-Baker Hughes merger talks have stalled
Nov. 14, 2014, 5:54 PM
- Baker Hughes (NYSE:BHI) -3.3% AH and Halliburton (NYSE:HAL) -1.2% following a Bloomberg report that merger talks have stalled, as the companies haggle over price and divestiture concerns.
- HAL reportedly could make an unsolicited tender offer for BHI instead, and nominate a slate of directors to BHI’s board.
- Today is the deadline to nominate directors to BHI’s board for the company’s 2015 annual meeting, WSJ reports; nominating directors would give HAL a path to go hostile if current negotiations break down and BHI resists further discussions.
- BHI’s 13 directors are all up for election every year, meaning HAL could seize control with one fell swoop.
Nov. 14, 2014, 12:48 PM
- Oil services companies are mostly higher as Halliburton (HAL +1.7%) is indeed in talks to buy Baker Hughes (BHI +0.5%), a deal that would provide a jolt to oilfield services companies contending with falling oil prices: SLB +0.4%, OIS +1.2%, SPN +2.3%, CAM +0.2%, FTI -0.3%, NOV -0.6%.
- Sterne Agee analyst Stephen Gengaro calls a potential HAL-BHI combo a “HAL of a Frac-ing Deal," seeing several positives for HAL including strengthening its relatively weak position in artificial lift and production chemicals which are critical to enhancing HAL’s mature field strategy, enabling it to leverage its unparalleled U.S. pressure pumping logistics chain to enhance the efficiency of BHI’s operations, and providing the opportunity for significant cost savings which likely would total $600M-$750M or more.
- While antitrust concerns could force some divestitures, Gengaro does not believe it would prevent a deal from happening.
- Other potentially attractive M&A targets among oil services companies could include Dril-Quip (DRQ +0.7%), Frank’s International (FI +2.6%) and Oceaneering (OII -0.2%), Simmons & Co. says.
Nov. 14, 2014, 9:13 AM
Nov. 13, 2014, 6:56 PM
- Baker Hughes (NYSE:BHI) confirms it has engaged in preliminary talks with Halliburton (NYSE:HAL) about a potential business combination and will offer no further comment.
- A merger could provide HAL with a "significant advantage in gaining global share, expanding margins and competing" against Schlumberger (NYSE:SLB), UBS analysts say, but digesting such a large acquisition could take two years or more and be a distraction to HAL.
- A combination of the second and third largest listed oil services groups by market cap likely would draw scrutiny from U.S. regulators, but the biggest obstacle to a deal might come from its E&P customers worried about the potential for higher prices at a time of falling crude oil prices.
- Also, doing a deal as oil continues to slide should make it a tough sell to BHI shareholders: Why sell amid such turmoil?
- BHI +16.3%, HAL +1.3% AH.
Nov. 13, 2014, 3:50 PM
- Baker Hughes (BHI +17.9%) resumes trading after a volatility trading halt following a WSJ report that Halliburton (HAL +4.8%) is in talks to buy the oilfield services company.
- Talks are moving quickly, and an agreement could be reached soon, according to the report.
- The price being discussed is not known, but a deal would be one of the largest in the energy sector in recent years.
Nov. 13, 2014, 3:20 PM
- U.S. crude oil prices break below $75/bbl for the first time in more than three years, brushing aside an IEA report showing a surprise 1.735M barrel inventory drawdown as well as remarks by the Saudi oil minister dismissing talk of an oil price war among producers.
- West Texas crude settled today at $74.21/bbl, -3.9% and breaking below an important support level; during the past three years, futures have tested but not broken through that level three times.
- Brent crude recently was trading below $78, -3%.
- Global oil majors are all lower: COP -1.9%, BP -1.4%, CVX -1.4%, XOM -1.1%, TOT -0.9%, RDS.A -0.7%.
- Oil services companies and offshore drillers suffer even sharper drops: SDRL -4.4%, SLB -4.2%, HAL -3.9%, BHI -3.9%, RIG -3.8%, DO -3.5%, NBL -2.9%.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, XOP, ERY, DIG, BNO, UGA, DTO, DBO, DUG, XES, IYE, IEO, CRUD, IXC, IEZ, PXE, USL, UWTI, IPW, FENY, PXJ, UHN, DWTI, DNO, RYE, FXN, SZO, GNAT, OLO, DDG, FILL, OLEM, TWTI
Nov. 10, 2014, 11:45 AM
- A new research report from Jefferies discusses four oil services stocks which it sees having huge potential upside, even as oil prices have taken a beating.
- Jefferies believes Schlumberger (NYSE:SLB) could be poised for years of solid growth despite the recent trend in oil pricing, and thinks the company will continue to drive margins on execution, technologies and efficiencies.
- Halliburton (NYSE:HAL) leads industry peers with North American margins of 18.2% and a plan to increase its allocation for its operations in North America.
- Baker Hughes (NYSE:BHI), which reported solid numbers for the quarter although some analysts were disappointed by margin guidance, while C&J Energy (NYSE:CJES) reported a very impressive earnings beat last week.
- The firm expects stock price increases of more than 40% for each of its selections.
Nov. 7, 2014, 5:55 PM
- Signs are building that falling oil prices are curtailing record drilling in the U.S., as oil rigs fell by 14 to 1,568 this week, the lowest level since Aug. 22, according to Baker Hughes' (NYSE:BHI) latest monthly tally.
- The oil rig count will drop to 1,325 by the middle of next year after reaching a peak of 1,609 on Oct. 10, energy data company Genscape forecasts, as drillers from Apache (NYSE:APA) to Continental Resources (NYSE:CLR) have said this week they are reducing rigs in some oil plays.
Oct. 23, 2014, 3:14 PM
- "I am as optimistic as I've been in a long time," says Don Wordell, noting the pull back in energy prices is a big economic stimulus. His RidgeWorth Mid-Cap Value Fund (MUTF:SAMVX) has topped 97% of peers over the last decade, and the $3.9B fund has returned 2.2% YTD - slightly ahead of the category average.
- His top five picks: SanDisk (NASDAQ:SNDK) is off more than 10% over the last month, but demand for its products is strong and growing. Cigna (NYSE:CI) and Aetna (NYSE:AET) stand to profit as hiring picks up, and with it more people into the healthcare system. Baker Hughes (NYSE:BHI) has been especially beaten down along with the price of oil, but Wordell says this hasn't caused companies to scale back production plans. OshKosk (NYSE:OSK) has been weighed on by sluggish commercial construction, but Wordell says it's about to pick up.
BHI vs. ETF Alternatives
Baker Hughes Inc operates in the oilfield services industry. It provides products and services for drilling and evaluation of oil and gas wells, completion and production of oil and gas wells, fluids and chemicals and reservoir technology.
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