Halliburton and rival Baker Hughes have agreed to merge in a deal worth US$34.6 billion in stock and cash.
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Significant synergy opportunities graph from Halliburton. |
According to Halliburton, the deal, which is expected to close in 2H 2015, could create $2 billion a year in cost synergies annually and may result in up to $7.5 billion in divestments, to meet regulatory requirements.
The announcement comes following days of speculation about the two firm’s possible merger, news of which saw Baker Hughes’ stock rise about 15% from $50.98 at closing on 12 November to $58.75 on 13 November. On Friday, Baker Hughes’ stock was trading at $59.48 per share.
According to the definitive agreement, approved by both companies’ boards, the deal gives Baker Hughes enterprise value of $38 billion.
The $2 billion in cost synergies would be through: North American operational efficiencies (31%), international operational efficiencies (23%), administration/organizational efficiencies (18%), R&D optimization (11%), corporate (9%) and real estate (8%). (shown on graph at right)
“The stockholders of Baker Hughes will immediately receive a substantial premium and have the opportunity to participate in the significant upside potential of the combined company,” says Dave Lesar, Halliburton chairman and CEO. "We expect the combination to yield annual cost synergies of nearly $2 billion. As such, we expect that the acquisition will be accretive to Halliburton’s cash flow by the end of the first year after closing and to earnings per share by the end of the second year. We anticipate that the combined company will also generate significant free cash flow, allowing for the return of substantial capital to stockholders.”
Under the terms of the takeover, stockholders of Baker Hughes will receive a fixed exchange ratio of 1.12 Halliburton shares plus $19 in cash, for each share. The value represents a premium of 40.8% to the stock price of Baker Hughes on 10 October 2014, the day before Halliburton's initial offer to Baker Hughes. Over longer time periods, it represents a one-year, three-year and five-year premium of 36.3%, 34.5%, and 25.9%, respectively. Upon completion of the deal, Baker Hughes stockholders will own about 36% of the combined company.
Halliburton has also agreed to pay a fee of $3.5 billion if the transaction terminates due to a failure to obtain required antitrust approvals and is confident that a combination is achievable from a regulatory standpoint.The combined company will retain the Halliburton name and the headquarters will continue to be in Houston. Dave Lesar, Halliburton’s chairman and CEO, will continue as chairman and CEO of the combined company. According to the definitive agreement, which has been unanimously approved by both companies’ boards of directors, the transaction is valued at $78.62 per Baker Hughes share, which equals to an equity value of $34.6 billion and enterprise value of $38 billion.
Halliburton says it has agreed to divest businesses that generate up to $7.5 billion in revenues, if required by regulators, although the firm says it believes that any divestitures required would be significantly less.
The deal is subject to approvals from each company’s stockholders, regulatory approvals and customary closing conditions.Law firm Baker Botts LLP is advising Halliburton, along with Wachtel, Lipton, Rosen & Katz. Baker Hughes’ legal advisors are Davis Polk and WilmerHale.
Halliburton expects to combine the company’s board of directors and expand to 15 members, three of whom will come from the Baker Hughes board.
The two Houston-based companies had $51.8 billion in revenues last year, more than 136,000 employees and operations in more than 80 countries around the world.
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