Baker Hughes and Halliburton are in ‘preliminary discussions’ in regards to a possible merger between the two oil services providers, Baker Hughes confirmed on 14 November.
“These discussions may or may not lead to any transaction. Baker Hughes does not intend to comment further on market speculation or disclose any developments unless and until it otherwise deems further disclosure is appropriate or required,” the company said.
After rumors of the possible merger leaked late Thursday, Baker Hughes’ stock price rose approximately 15% from US$50.98 at closing on Wednesday to $58.75 on Thursday. Today, Baker Hughes’ stock is trading at $59.48 per share with news of the merger talks confirmed. Alternatively, Halliburton’s stock hasn’t risen as dramatically following the news. Halliburton’s stock was worth $53.23 per share at close on Wednesday and ended at 53.79 on Thursday after news broke. Currently, Halliburton is trading at $54.92.
"By eliminating a competitor, Halliburton, already the world's second biggest provider of oilfield services, would gain market clout that would help insulate it from a sustained market decline," reported Bloomberg.
According to market analysts Investec, the deal could be a good move for Halliburton: "It closes the market value gap to Schlumberger, the number one player. Current market values are; Schlumberger US$122 billion; Halliburton $46 billion and Baker Hughes $25 billion. An enlarged Halliburton/Baker Hughes may use its greater purchasing power to squeeze suppliers such as Hunting (downhole tools), for which both companies are key customers."
Investec added: "Given the collapsing oil price, a merger could be seen as defensive, protecting market shares and with synergies to lower the combined cost base. However, there has also been a clear trend over the past decade to become more of a ‘one-stop shop’, expanding geographically and broadening the service offering. A merger would offer Halliburton/Baker Hughes both."
However, the firm says there are likely to be anti-trust issues. "These look likely to be extensive, particularly in the US. It has been suggested in the media that HAL may try to pre-empt this by creating a unit of assets for disposal. Areas of concern may include hydraulic fracturing, wireline logging, completion services, cementing services and drill bits.
Baker Hughes has 61,000 staff working in more than 80 countries. Halliburton has about 80,000 staff in about 80 countries.