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An overview of the Baker Hughes-Halliburton acquisition

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An overview of the Baker Hughes-Halliburton deal

On November 17, Halliburton Company (HAL), one of the largest US oilfield service companies, disclosed that it will acquire Baker Hughes Inc. (BHI), its major competitor. The two companies have announced a definitive agreement under which HAL will acquire BHI’s outstanding shares.

HAL expects to acquire BHI through a deal that consists of 76% stock and 24% cash. As these two are currently the second and fourth largest oilfield service and equipment companies in the US by market capitalization, combining BHI will likely give HAL a higher market share and cost optimization benefits.Transaction Summary

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Transaction value

HAL’s bid to acquire BHI is valued at $34.6 billion. HAL will acquire BHI’s shares at a 40.8% premium based on closing price as of October 10, 2014. Accordingly, BHI’s shares will be valued at $78.86 in this transaction. This represents $34.6 billion equity value and $38.0 billion enterprise value. Enterprise value considers equity value plus net debt obligations of BHI.

The combined company will retain the Halliburton name and continue to be traded on the New York Stock Exchange under the ticker symbol “HAL”. The companies expect the transaction to close in 2Q15. Read Part 7 of the series to learn more about the financial terms in greater detail

Size matters

As of November 17, HAL and BHI’s market capitalizations stand at $41.72 billion and $28.22 billion, respectively. Schlumberger (SLB) and National Oilwell Varco (NOV) hold the first and third largest place in this industry, respectively. All these are components of VanEck Vectors Oil Services ETF (OIH).

BHI and HAL offer similar services and products to the energy upstream companies. But the scope of their offering varies, both geographically and technology-wise. In the following section of this series, we will discuss these differences in detail.

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