Appaloosa Management and Halliburton
Appaloosa Management exited its position in Halliburton Company (HAL) during the fourth quarter. The position accounted for 4.78% of the fund’s 3Q14 portfolio. The fund had held about five million shares of Halliburton.
Halliburton in brief
Halliburton Company provides services related to the exploration, development, and production of oil and natural gas to companies in 80 countries. The company serves the upstream oil and gas industry. Halliburton has two divisions:
- Completion and Production
- Drilling and Evaluation
Halliburton operates in the following geographic segments:
- North America
- Latin America
- Europe, Africa, and CIS (or Commonwealth of Independent States)
- Middle East and Asia
The company expects the North American market to be volatile for a few quarters as a result of declining oil prices. Halliburton also anticipated headwinds in all of its international regions.
Deal with Baker Hughes
In November, Halliburton agreed to acquire its major competitor Baker Hughes (BHI). Halliburton expects to achieve $2 billion in annual cost synergies after completing the deal.
ValueAct Capital disclosed its activist stake in Baker Hughes, stating that the deal with Halliburton would cut overlapping costs. The hedge fund believed that the combined company would “get through the current downturn” in the oil industry.
Halliburton announced that it would lay off 5,000–6,500 employees apart from its acquisition of Baker Hughes. This decision came about due to declining oil and gas exploration and production activity amid falling oil prices. These job cuts would account for 6.55%–8.5% of Halliburton’s total workforce.
Higher profit amid oil downtrend
For the fourth quarter of 2014, Halliburton reported revenue of $8.8 billion compared to $8.7 billion for the previous quarter. The 10% revenue increase in the Middle East and Asia segment; the 3% increase in the Latin America segment, offset by the flat revenue in North America; and the 8% decline in the Europe, Africa, and CIS segment drove this growth.
Net income was up 13.6% on a YoY (or year-over-year) basis to $901 million or $1.06 per share. Adjusted net income was $1 billion or $1.19 per share.
The company took $129 million restructuring charges in anticipation of an activity decline in 2015.
Full-year 2014 results
Halliburton’s revenue was up 12% from 2013 to $32.9 billion. Increased stimulation activity in the United States land market and Macondo-related items drove this growth. The North America segment reported a record revenue increase of 16%.
In 2014, Halliburton returned 33% of operations cash flow to its shareholders. On February 13, the company declared a quarterly dividend of $0.18 per share. This was in line with the previous ones.
Appaloosa’s other 4Q14 positions
David Tepper’s Appaloosa Management initiated new positions and sold some existing positions during the fourth quarter of 2014. Appaloosa added a new position in American Realty Capital Properties (ARCP). The fund sold positions in some of its largest companies, including Citigroup (C), Facebook (FB), and CBS Corporation (CBS). Appaloosa also reduced its holdings in Delta Air Lines (DAL), Google (GOOG), and the Priceline Group (PCLN).
In the next part of this series, we’ll discuss Appaloosa’s exited position in Citigroup.