The merger between Halliburton (HAL) and Baker Hughes (BHI) was announced with much fanfare. Over a year later oil prices are sub-$50, the global economy is in shambles and the deal is receiving a cool reception from regulators. Now oil giant Total S.A. (TOT) CEO Patrick Pouyanne may have knifed the deal:
Total SA Chief Executive Officer Patrick Pouyanne said Tuesday that the planned tie-up of the world’s second- and third-largest oil services providers is not good news for explorers and producers. “Obviously when you have less competition in service providers, I’m not in favor,” Pouyanne said in an interview in New Orleans at the Scotia Howard Weil Energy Conference. When asked if he voiced his opinion on Halliburton planning to buy Baker Hughes, he said, “I’m doing my job.”
HAL closed down over 2% to $35 while BHI was off over 3% to 45. BHI now trades at a 22% discount to its implied merger value of $58, indicative of how uncertain traders are that the deal will get done. For months after the deal was announced in November 2014 the discount was 10% or less.
The Situation
The proposed merger between the numbers two and three oilfield services companies has faced a groundswell of opposition. In October the Australia Competition and Consumer Commission (“ACCC”) raised an issue that the merger could create coordinated behavior post-deal. In November Jefferies threw shade over potential concerns the deal might reduce competition at the upper end of the oil services market. I found it unusual in that investment banks are typically bullish on stocks and potential deals, and saw it as a clear sign the merger was in trouble.
Regulators have a point. Halliburton is already offering price concessions in certain sectors of the North American land drilling market. Halliburton, Baker Hughes and Schlumberger (SLB) have the heft to provide concessions that lesser-capitalized companies like C&J Energy Services (CJES) or Oil States International (OIS) may not. Halliburton has intimated it is willing to engage in asset sales (beyond those required by the DOJ) in order to get the merger approved. The question remains, “Can Halliburton ensure it will not disrupt the competitive balance in every product, in every market?”
