An overview of the asset sale
On December 1, Weatherford International (WFT) and Berkshire Hathaway (BRK-B) signed a definitive agreement. Following the agreement, WFT will sell its oilfield chemicals business to a BRK-B subsidiary, the Lubrizol Corporation.
The transaction includes Engineered Chemistry and Integrity drilling fluids manufacturing. Lubrizol will pay $750 million in cash. The deal also involves a $75 million earn-out provision, subject to post-closing business performance. An earn-out provision is additional payment made to the seller by the buyer after the business is sold. The payment depends on successful execution of pre-determined performance of the business sold as set by the buyer.
Before we get into the details of the transaction, let’s understand WFT’s business.
A quick overview of Weatherford International
Weatherford International is an Ireland-based oil and gas field service company. It offers services and products for well lifecycle. Its product service line has two groups:
- Formation evaluation and well construction
- Completion and production
The company operates in 50 countries across the world. WFT’s primary reporting segments are: North America, Latin America, Europe/Sub-Sahara Africa/Russia, and Middle East/North Africa/Asia Pacific.
The recent fall in crude oil price has stirred the oil and gas field equipment service industry. The industry has started to see consolidation and asset sales as energy prices hit margins and turnover.
Baker Hughes (BHI) and Halliburton (HAL), two leading players in the industry, have announced a merger recently. BHI, HAL, and SLB are components of the VanEck Vectors Oil Services ETF (OIH). Schlumberger (SLB), which is a component of the Energy Select Sector SPDR ETF (XLE), has also been negatively affected.
Read Market Realist’s article on Baker Hughes-Halliburton: A critical deal for the oil industry here.
In the following section of this series, we’ll discuss the nature of the asset transaction.