Halliburton buys Baker Hughes to create oilfield services champion

By Kasia Patel
Published: Thursday, 27 November 2014

Both to operate under one large Houston-based company

Halliburton will buy Baker Hughes Inc. for $34.6bn to create a combined Houston-based global oilfield services provider.

Both companies, which are leading producers and providers of oilfield minerals including bentonite and barite (barytes), entered into a definitive agreement in November under which Halliburton will acquire all the outstanding shares of Baker Hughes in a stock and cash transaction, valued at $78.62 per Baker Hughes share.

"The transaction will combine the companies’ product and service capabilities to deliver an unsurpassed depth and breadth of solutions to our customers, creating a Houston-based oilfield services champion, manufacturing and exporting technologies, and creating jobs and serving customers around the globe," Halliburton’s CEO, Dave Lesar, said.

In 2013, Halliburton and Baker Hughes had a combined revenue of $51.8bn with operations in more than 80 countries globally, and employing over 136,000 people.

According to the companies, the transaction will combine two complimentary suits of products and services into a comprehensive offering to oil and natural gas customers. 

Lesar predicts that the combination will yield annual cost synergies of almost $2bn, contributing to earnings per share by the end of the second year.

"We believe that the expertise of both companies’ employees and leaders will be a competitive advantage for the combined company," he added.

Martin Craighead, CEO of Baker Hughes, said: "By combining two great companies that have delivered cutting-edge solutions to customers in the worldwide oil and gas industry for more than a century, we will create a new world of opportunities to advance the development of technologies for our customers." 

He added that the agreement will let both companies to achieve objectives which neither would have realised on its own, or as well. 

The combined company will operate under the name of Halliburton and will be headquartered in Houston, Texas.

Lesar will continue as CEO of the joint company, and the board of directors will expand to 15 members, three of which will come from the Baker Hughes board. 


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Transaction terms 

On completing the transaction, Baker Hughes stockholders will own approximately 36% of the combined company, and both the Halliburton and Baker Hughes board of directors have approved the agreement.

Baker Hughes stockholders will receive a fixed exchange ratio of 1.12 Halliburton shares plus $19 in cash for each Baker Hughes share. 

The value of the merger consideration as of 12 November 2014 represents 8.1 times current consensus 2014 EBITDA* estimates and 7.2 times current consensus 2015 EBITDA estimates.

The transaction value represents a premium of 40.8% to the stock price of Baker Hughes on 10 October 2014, the day prior to Halliburton’s initial offer to Baker Hughes.

The acquisition will be financed by Halliburton through a combination of cash on hand and fully committed debt financing, and is subject to stockholder and regulatory approvals.

Having pre-empted the actions likely to be needed for regulatory approval, Halliburton has agreed to divest businesses that generate up to $7.5bn in revenues and to pay a fee of $3.5bn if the transaction terminates due to a failure to obtain required antitrust approvals.

Oilfield demand strong

Both Baker Hughes and Halliburton posted positive third quarter results in 2014 as demand from the oilfield sector remained strong driven by drilling activity in the Americas, which will in turn drive demand for oilfield minerals such as silica (frac) sand, barite and bentonite.

Activity in the Eastern Hemisphere continued to expand steadily according to Halliburton, which contributed to a sequential growth in revenue of 4% and an increased in operating earnings of 3%, driven by Saudi Arabia, Oman, Angola and Continental Europe.

Increased project management, consulting and software revenue in Mexico resulted in revenue growth of 16% from Latin America. This was also buoyed by increased testing and drilling activity in Brazil and workover and stimulation activity in Venezuela.

The increase in Baker Hughes revenue was driven partly by Latin America owing to increased activity in Argentina and offshore Mexico. Revenue growth in North America was driven by an increase in service intensity in the company’s pressure pumping product line and the seasonal rebound of its Canadian business.

However, disruptions in Libya and Iraq, the declining Russian rouble and activity delays in the Gulf of Mexico all negatively impacted the business, Baker Hughes said.

*Earnings before interest, taxes, debt and amortisation.