Halliburton spends 35 billion to buy Baker Hughes

The two US energy giants say the merger will clear regulatory hurdles, but investors remain cautious.

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By :  ,  Financial Analyst

US energy giants Halliburton and Baker Hughes are to merge after Halliburton agreed to pay $35 billion (£22.3 billion) in cash and stock. The move would unite the two companies and create an entity dominant in US onshore services such as hydraulic fracturing and horizontal drilling.

Halliburton expressed confidence that the deal would clear regulatory hurdles, saying it was prepared to shed assets to mollify antitrust concerns that could arise in Asia, Europe and the Americas.

"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," Halliburton Chief Executive Dave Lesar told Reuters.

But after the announcement on Monday (November 17th), Baker Hughes shares were trading well below the offer, suggesting that investors were not so sure of that Halliburton would be able to clear regulatory approvals. Baker Hughes shares rose nearly 11 per cent to $66.44 each on Monday, short of Halliburton's offer of $80.69.

However, Kurt Hallead, oilfield services analyst at RBC Capital Markets, told Reuters the risk of the deal failing was low. "I think the assessment on divestitures matches up pretty closely with the work we've done. I don't anticipate there being any roadblocks," he said.

Halliburton and Baker Hughes are merging amid plunging crude prices, which have dropped to a more than four-year low. The deal eliminates one of Halliburton’s chief rivals, creating a giant competitor against market leader Schlumberger Ltd. 

Deals are riskiest when they involve a company acquiring another that’s roughly the same size, like Halliburton is doing, Pavel Savor, a finance professor at Temple University’s Fox School of Business, told Bloomberg.

“What’s clear is that the management teams of both companies - especially of Halliburton – are taking a significant risk here, and so far the market doesn’t seem to think it’s a risk worth taking,” he said. Today, Halliburton shares rose 1.1 per cent to $49.77 at 9:53 ET. New York time.

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