Halliburton and Baker Hughes announced on Sunday May 1st, 2016 that the companies have terminated the merger agreement they entered into in November 2014.
Obtaining regulatory approval for the $35bn transaction proved to be an impossible task. US and international bureaucrats could not get comfortable with the market share consolidation the deal would have brought despite the large asset sales both companies agreed to. Wall Street has been skeptical of the deal’s chance to close for over 10 months. The deal would have been the largest in oil service history.
The break-up has some big implications. Here are a few:
• Halliburton will pay Baker Hughes a termination fee of $3.5 billion by Wednesday, May 4, 2016.
• For Halliburton, the cash outlay is not easy to stomach in the downturn, but for Baker Hughes the break-up will be much more painful. The company’s competitive position has been eroded while it waited on the deal to close (Halliburton would have been the surviving entity). The question now becomes whether Baker can thrive as a standalone entity.
• Asset sales won’t go forward, and the companies will retain the business units they had planned to sell.
• Employees of both companies can breath a sigh of relief. Had the deal gone through, many jobs would have been cut to deliver cost synergies and eliminate redundancies. While the companies may lay off more workers in the downturn, fewer jobs will be lost with the merger terminated.
• The implications for competitors Schlumberger and Weatherford are mixed. On the one hand, a combined Halliburton/Baker would have reduced the number of bidders, potentially enabling higher oil service pricing. But together, Halliburton/Baker would have been a more formidable competitor. With Baker now potentially crippled by the break-up, the rest of the large cap service companies may be able to take market share. Schlumberger loved the deal when it was announced, and it turns out the distraction was much larger than they could have ever imagined.
Here’s What The CEOs Said About The Mega-Merger’s Unhappy Ending
“While both companies expected the proposed merger to result in compelling benefits to shareholders, customers and other stakeholders, challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action,” said Dave Lesar, Chairman and Chief Executive Officer of Halliburton. “I sincerely thank both our employees as well as the Baker Hughes employees for their tireless efforts throughout the regulatory review process. While disappointing, Halliburton remains strong. We are the execution company – our strategy, technologies and service quality are focused on helping customers maximize production at the lowest cost and driving industry leading growth, margins and returns.”
“Today’s outcome is disappointing because of our strong belief in the vast potential of the business combination to deliver benefits for shareholders, customers and both companies’ employees,” said Martin Craighead, Chairman and Chief Executive Officer of Baker Hughes. “This was an extremely complex, global transaction and, ultimately, a solution could not be found to satisfy the antitrust concerns of regulators, both in the United States and abroad. As we turn the page on this chapter, I want to thank our customers for their patience and continued loyalty over the past 18 months. I also want to thank the entire Baker Hughes team for their unwavering dedication and commitment during this process. Baker Hughes is strongly positioned to build on its foundation and heritage as a technology innovator that differentiates for our customers and delivers compelling value to shareholders.”
This article was originally published on OilPro.com, a site which is now defunct, in May of 2016.