Halliburton Co., the world’s second- biggest provider of oilfield services, agreed to buy No. 3 Baker Hughes Inc. in one of the largest takeovers of a U.S. energy company in years.
Baker Hughes shareholders will receive 1.12 Halliburton shares plus $19 in cash for each share they own, the companies said today in a joint statement. Halliburton plans to finance the deal through a combination of cash on hand and debt financing.
Halliburton eliminates one of its chief rivals in the merger, expanding its business portfolio and global reach at a time when falling oil prices have plunged the industry into a downturn. The combined company will be a little more than half the size of larger rival Schlumberger Ltd.
“These oilfield services companies need to have a global footprint of a complete portfolio of products and services,” Richard Spears, vice president at Tulsa, Oklahoma-based industry consultant Spears & Associates, said in a phone interview before the deal was announced. “Schlumberger has it; a Halliburton- Baker Hughes combination would mimic the Schlumberger footprint.”
The deal is expected to draw federal antitrust scrutiny, especially where the two companies’ businesses overlap most in North America. Halliburton said while it has agreed to sell businesses that generate as much as $7.5 billion in sales, it expects the amount required by regulators should be significantly less.
The combined company is expected to generate annual cost savings of almost $2 billion, according to the statement. With Baker Hughes, Halliburton fills a gap in its portfolio of oilfield services: technology to boost production in aging wells. Halliburton also gets Baker Hughes’ prized oil tools business.
The statement was released before the start of regular trading in New York. Baker Hughes rose 16 percent to $69.30 at 7:29 a.m. in New York. Halliburton fell 3.3 percent to $53.25.
The two companies restarted talks yesterday after initial discussions fell apart late last week triggering a stalemate that lasted through Nov. 15, a person familiar with the matter said yesterday.
Baker Hughes confirmed the takeover talks on Nov. 13 after media reports of a potential deal. Talks collapsed a day later, and Baker Hughes released letters in which CEO Martin Craighead tookHalliburton CEO Dave Lesar to task for refusing to raise his offer and pressuring the company to make a hasty decision by threatening a proxy fight.
Both companies are hired by oil and natural gas explorers to drill wells and provide services such as hydraulic fracturing, or fracking, which cracks rock to let petroleum flow more freely.
Together, the companies will dominate the $25 billion U.S. market for onshore fracking.
“The fracking overlap is going to invite some scrutiny,” Bill Herbert, an analyst at Simmons & Company International said in an interview before the statement was released. “It’s safe to say the Justice Department scrutiny of this deal is going to be pretty deep.”
Another area of scrutiny for regulators will probably be offshore drilling services in the Gulf of Mexico, said Andrew Cosgrove, an energy analyst with Bloomberg Intelligence. Deep- water operators like Petroleo Brasileiro SA, known as Petrobras, mainly rely on the “big three” --Halliburton, Baker Hughes and Schlumberger, he said.
“Now if it’s two, that potentially increases pricing power for the service companies and puts pressure on” exploration and production companies, Cosgrove said.