Halliburton-Baker Hughes Deal Will Only Prolong The Shale Drilling Downturn

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By Christopher Helman 

After a week of negotiations that on Friday turned into a must-see soap opera,Halliburton is buying Baker Hughes in a deal that values Baker at an enterprise value of $38 billion, including $34.6 billion in equity value, a 41% premium. Baker shareholders will get 1.12 Halliburton shares plus $19 in cash for each share. The combined company will boast revenues of more than $52 billion, with 136,000 employees. The deal is expected to close in mid 2015, and Halliburton CEO David Lesar forecasts $2 billion in annual cost synergies and cash flow accretion to Halliburton by the end of the first year.

It was October 13, when Halliburton made an inital overture to Baker Hughes. Talks got testy on Nov. 4 when Baker CEO Martin Craigshead objected to pressure from Halliburton to get a deal done. And they got nasty last Friday, when Halliburton threatened to wage a proxy battle and replace Baker’s board with directors more amenable to a deal. (For more, The Wall Street Journal has covered this story here, here and here.) Have Craigshead and Lesar now kissed and made up? We’ll see as the deal unfolds in the months to come.

Thus Halliburton and Baker Hughes becomes the first megadeal in what promises to be a wave of consolidation in the oilpatch as plunging crude oil prices bring about an abrupt popping of the shale bubble. So what other companies are now in play? National-Oilwell Varco, Weatherford International, Cameron International , FMC Technologies , could all be in play for M&A. Potential shoppers outside the core of the industry include General Electric , which has been moving aggressively into the oil services business with acquisitions including Hydril, Vetco-Gray and a compression business of Cameron.

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