Halliburton and Baker Hughes Inc. have long reigned as mainstays of the oil country tubular goods market. In recent months, declining oil prices have begun adversely affecting the aforementioned market as well as the energy sector as a whole. A continued downturn in the cost of a barrel of oil will naturally exert pressures, likely thereby triggering shifting alliances throughout the industry. Still, few were prepared for the seismic shift that was about to unfold.
On Monday, November 17, 2014, Halliburton announced plans to acquire Baker Hughes at a price tag of approximately $35 billion. The sustained slide in oil prices had sparked speculation within the energy sector that mergers might be required to ensure survival and adaptability. As the proposal currently stands, Halliburton’s acquisition of BHI will create the 2nd most powerful entity in the market, trailing only Schlumberger, the oil services leader.
Assuming the merger is approved, Baker Hughes stockholders stand to profit immediately. As outlined in the stock and cash proposal, BHI shareholders will receive 1.12 shares of Halliburton stock as a result of the merger. While that news alone is exciting enough, the shareholders will additionally garner $19 in cash for each share of BHI stock currently owned. Both these developments have engendered tremendous enthusiasm on the Baker Hughes front in anticipation of the regulators bestowing their blessings upon the deal.
On the other hand, gains for Halliburton stockholders are expected to accrue over the long term, thereby demanding a more patient and measured approach. Benefits for all the company’s shareholders are expected to rise as the merged giant increases its capabilities and expands market share both within the United States and throughout much of the world. As company operations grow more efficient, all involved should profit. Consider, for example, that Baker Hughes has long commanded a stronger presence in Russia and Canada than its soon to be former rival. Accordingly, Halliburton will inherit this expanded profile, an expansion that should produce a significant amount of additional revenue over the coming years. Of course, as the two giants amalgamate into one, savings are expected in areas such as combined logistics and streamlined administration. Increased capability in terms of research and development, pressure pumping, and logistics is also anticipated to yield enormous gains with the passage of time. Consequently, for shareholders, there is much to be gained.
Within the energy industry, the likelihood that the regulators will approve the acquisition is a topic of hot debate. While some analysts view Halliburton’s holding around the world as an impediment, many others contend that the Justice Department generally chooses not to meddle with oil mergers. Thus, in their eyes, the merger faces no real danger of disapproval. As an added emphasis to bolster their position, they point to the actions of Halliburton in divesting itself of many interests around the world.
Industry giants in the oil country tubular goods market such as MSI watch events in the energy sector with a wary eye. Companies like these are all subject to the pressure created by continuously falling oil prices. However, unlike many companies, MSI is tried and proven, having withstood the test of time. As a result, they are a good bet to survive the current oil slide storm, as well as future ones that may come. Contact MSI today!
