Current HAL Stock Info

Includes $3.5 Billion Payout to Baker Hughes if Merger Fails to Gain Antitrust Approval

The rumblings of a landmark oilservices deal that began on Thursday evening came to fruition over the weekend. By Monday, November 17, 2014, Halliburton (ticker: HAL), the second largest oilservices provider, announced plans to merge with rival Baker Hughes (BHI). BHI, the world’s third largest oilservices provider by market capitalization, provides HAL with a greater stake in the United States.

Total consideration for the deal is an equity value of $3...

Analyst Commentary

Raymond James & Associates (11.17.14)

The potential Baker Hughes and Halliburton merger would significantly change the landscape of the oil service market, combining the second and third largest oil service companies worldwide. Both Halliburton and Baker Hughes have very similar operational structures with ~50% leverage to the North American market and a robust completions portfolio centered on pressure pumping. While it is certainly possible that a deal can be struck, it would likely require high scrutiny by the Department Of Justice (DoJ, as demonstrated by our study of the Herfindahl-Hirschman Index impacts). Nevertheless, a potential acquisition would be a game-changer for the entire oil service arena.

* The Potential Deal: Yesterday, speculation began regarding a potential deal in which Halliburton was in talks to acquire Baker Hughes. Baker Hughes later announced that it was in "preliminary discussions" with Halliburton regarding a potential merger, though it wouldn't indicate anything further. The potential acquisition would combine the second and third largest oilfield service companies worldwide, and would create the second largest company in the oil service arena, just behind Schlumberger. Given the strength in Baker Hughes's business, we would expect that if an acquisition were to occur, it would occur at a higher share price than Baker Hughes's current market value. For reference, Baker Hughes's current market cap of ~$25.4 billion implies a ~5.1x 2015E EBITDA multiple on RJ estimates, roughly equivalent to Halliburton's current 2015E EBITDA multiple. While it would appear an acquisition of equals could be difficult, we would expect a considerable level of synergies could still allow for an accretive acquisition to occur.

* Why Would Halliburton Want Baker Hughes? Halliburton and Baker Hughes have significant overlap in terms of operations, with both companies operating in most of the same market segments, namely an overall ~50% North American market share. However, this is an opportunity for Halliburton to look to further grow its footprint in the North American oil service market and develop itself as the leader in the growing market. With one of the major discussions in the industry focusing on the integration of services, this larger company would be able to offer a more full scale suite of services. It could also offer an opportunity to step further into the coveted artificial lift market, as well as an entry into the Baker Hughes-Aker subsea alliance.  

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