OIL services giant Halliburton is to buy rival Baker Hughes in a blockbuster $35 billion (£22bn) cash-and-shares deal which will help it take on market leader Schlumberger as customers begin to cut spending due to falling oil prices.
The agreed deal between the second- and third-largest companies in the industry – which both have significant North Sea interests, with sites around Aberdeen – would form an energy behemoth with more than 136,000 employees. Combining will give the new company estimated savings of nearly $2bn a year.
Halliburton expressed confidence that the deal would clear regulatory hurdles, but Baker Hughes shares were trading well below the offer price, suggesting investors were not so sure.
The deal comes just days after talks had stalled. Baker Hughes said on Friday that Halliburton refused to raise its first and only offer, and Halliburton was preparing to attempt a hostile takeover.
The combined company would generate slightly larger revenue than Schlumberger, currently the world’s biggest oil services business, although in terms of market value it would still be significant smaller.
Judson Bailey, an analyst at Wells Fargo, said: “The combined entity would not have the breadth or depth of Schlumberger, but we do believe Halliburton-Baker Hughes creates a more formidable number two competitor in several areas.”
Halliburton and Baker Hughes have both benefited from a boom in US drilling work, which they helped fuel through the development of technology used extract oil and gas from shale deep offshore.
Halliburton said it was ready to divest businesses that generate revenues of $7.5bn to satisfy regulators and would also pay Baker Hughes $3.5bn if the deal was not cleared. Halliburton chief executive Dave Lesar said: “At the end of the day, we wouldn’t have done this deal if we didn’t believe it was achievable from a regulatory standpoint.”
If a deal were struck, the companies could well have to sell assets to convince regulators they would not hurt competition, said Seth Bloom, a veteran of the US Department of Justice’s anti-trust division who is now in private practice.
He said: “The question with mergers like this is are there divestitures of submarkets that can solve the problem. It’s clearly not a slam dunk to approval but it’s not automatic that you can’t get it through. You have to drill down to see what the markets are like.”
The deal is also likely to draw the scrutiny of regulators in Europe, China, Brazil and Mexico, others experts said. Arguably, the competition concerns would be greatest outside the US, where there are relatively few oil services companies.
Under the deal, Baker Hughes shareholders will get 1.12 Halliburton shares plus $19 in cash for every share held, and will own 36 per cent of the combined company. Baker Hughes will get three seats on the combined company’s 15-member board.
The last major deal in the energy industry, announced in August and worth some $70bn, was pipeline giant Kinder Morgan’s move to fold its various units into a single entity.
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