Baker Hughes says it expects to make some US$500 million annual savings by the end of 2016, as part of measures it is taking following the collapse of its proposed $34.6 billion merger with Halliburton.
The initial phase of the cost reduction efforts is expected to result in $500 million of annualized savings by the end of 2016. A $3.5 billion break-up fee, due to Baker Hughes, following the termination of the merger, will be used to fund a $1.5 billion share buyback and $1 billion debt buyback, alongside a $2.5 billion refinancing planned for later this year when an existing credit facility runs out.
The merger with Halliburton - which would have seen the world's second and third largest oilfield services firms, Halliburton and Baker Hughes combine - was proposed in November 2014 and was met with resistance from US and European regulators. Both companies had planned to shed business lines in order to maker the merger more palatable, but even oil majors spoke out against the move, including Total.
GE and more recently Carlyle Group, a private-equity firm, had been seen as possible buyers for a package of these assets. However, finally, last month, the US Department of Justice filed a lawsuit to block the merger, due to its belief the merger would hurt competition in the market.
Baker Hughes, which had been held back from making cost savings during the merger talks, said it will now seek to reduce costs, simplify its business, improve its commercial strategy and optimize its capital structure, as it looks to reshape the business "during the ongoing industry challenges of today" as well as to meet the "additional opportunities" it expected to be available when the market recovers.
Baker Hughes Chairman and CEO Martin Craighead said that the company was well positioned to build on its heritage as a product innovator, focusing on the development of products that lower costs and maximize production for operators in the oil and gas industry.
"More than ever, our customers need to lower their costs and maximize production," he said. "These objectives align with our strengths in well construction, where we have leading capabilities in drilling services, drill bits and completions, and well production, where we have a unique portfolio with artificial lift systems, wireline services and production chemicals. We intend to build on our strong foundation and market position by simplifying the structure of our business and evolving our commercial strategy to deliver significant value to shareholders."
Actions outlined by the company include:
Improving operational efficiency and effectiveness, by removing significant costs it said were retained in compliance with the former merger agreement. It will also look at "broader structural changes" to further significantly reduce costs and improve efficiency.
The company will be rationalizing where it provides its current full-service model and will build a broader range of global sales channels for select countries, including tailored operating models, the firm said, allowing it to take product to market more efficiently and participate differently in existing markets with lower investment and fewer risks.
According to Baker Hughes' website, the firm employs some 43,000 people. Halliburton stakes claim to some 55,000.
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