Behind the scenes of the Halliburton-Baker Hughes merger

By

Updated

Proxy war

Until now, we have discussed various operation and financial aspects of the proposed merger of Baker Hughes (BHI) into Halliburton (HAL). But the transaction still has to overcome a number of obstacles before it can be implemented. In this article, we’ll discuss the obstacles the deal dealt with before it was announced.

On October 13, Halliburton (HAL) proposed to acquire Baker Hughes’ (BHI) shares without prior notice. After receiving BHI’s counter proposal on value, Halliburton refused to increase its first and only value proposal. On November 14, HAL expressed its intention to nominate candidates to replace the entire board of directors of Baker Hughes at its April 2015 annual meeting.

Chairman Response

Article continues below advertisement

Chairman’s response

Baker Hughes considered Halliburton’s move to be an attempt to force shareholders to accept HAL’s preliminary offer. Martin Craighead, Chairman and CEO of Baker Hughes, stated: “Baker Hughes is disappointed that Halliburton has chosen to seek to replace the entire Baker Hughes board rather than continue the private discussions between the parties. Baker Hughes believes that Halliburton’s various attempts at coercive tactics, instead of being willing to negotiate a reasonable value for the Company’s stock and despite having stated twice that they have room to increase the value of their offer, are attempts to control both sides of a negotiation and are entirely inappropriate.”

However, on November 17, the two companies announced a definitive agreement under which HAL will acquire BHI’s outstanding shares.

Other key operators and ETFs

Schlumberger (SLB), a US energy drilling and equipment services and products giant, may look for similar acquisitions to protect its market share. It has $3.1 billion in cash and cash equivalents as of September 30. HAL, BHI, and SLB are components of the VanEck Vectors Oil Services ETF (OIH). SLB is a component of the Energy Select Sector SPDR ETF (XLE).

This critical deal in the oil service and equipment industry may have to go through a number of regulatory barriers. Read the following sections to find out what these issues are and the financial implications if the deal fails to materialize.

Advertisement

More From Market Realist