FEW MOURN MERGER’S DEMISE
Some customers prefer Halliburton, Baker Hughes operating separately
Not so long ago, it looked like they might be playing on the same team. But as the 47th Offshore Technology Conference opened Monday, the Houston companies Halliburton and Baker Hughes were rivals again.
A day after the deal to combine the No. 2 energy services company, Halliburton, with No. 3 Baker Hughes fell apart, engineers from the companies were showing off competing technologies to potential clients from around the world.
Halliburton technology buffs trotted out the company’s new computer system for tracking fluids within massive offshore facilities, while Baker Hughes workers gave presentations on boosting deep-water oil production.
While the companies’ chief executives had called their inability to overcome the government’s antitrust objections “disappointing,” that sentiment was hardly universal among the tens of thousands of energy professionals attending. Some potential customers and smaller competitors said they preferred to see the energy services giants operating separately rather than together.
“In these fields, there are only a few players,” said Fadi Kabboul, an oil specialist from Venezuela. “In these type of services, you need to think about it very carefully, because you can end up with a monopoly or something that might not be
helpful for the industry.”
Employees for Halliburton and Baker Hughes declined to comment on the failed merger.
A combination between the two would have created the biggest oil field services company in the U.S. and the second largest in the world after No. 1 rival Schlumberger.
The Justice Department filed an antitrust suit against the companies last month, saying the merger would create a duopoly with Schlumberger in more than 20 oil equipment markets.
Good for competition
“Competition is always good for the market,” said Brian Harrington, a project manager at HDI Gauges in Houston. “It wasn’t just the U.S. that was complaining. The U.K. was complaining. Australia was complaining. There must be a reason. Usually it’s because it’s stifling competition.”
Baker Hughes agreed to sell itself to Halliburton in late 2014 in large part as a measure to ride out the downturn that would eventually force drillers to sideline two-thirds of their U.S. oil and gas rigs.
It was also, to a certain extent, a power play: A bigger company with a dominant market share could, to some degree, resist calls from oil producers to lower costs as crude prices sank because customers would have fewer choices.
“There may be a certain amount of relief ” that the deal isn’t happening, said Frances Metcalfe, head of oil and gas at Cambridge Consultants in the United Kingdom. “There are quite a lot of decisions that companies were waiting to make until they saw the outcome of the transaction.”
$3.5 billion for breakup
As part of the merger deal, Halliburton will pay Baker Hughes a $3.5 billion breakup fee.
Baker Hughes said Monday that it will use that breakup fee to buy stock and pay off some of its debt, in addition to cutting about $500 million in annual costs.
Baker Hughes plans to buy back up to $1.5 billion in shares and retire about $1 billion in debt.
The company said it is considering structural changes for its businesses to cut costs and become more efficient.
Conference calls
Baker Hughes will hold a conference call Tuesday morning to further detail its plans.
Halliburton will offer commentary on its firstquarter earnings Tuesday and is expected to discuss the failure of the proposed merger.
Baker Hughes’ stock fell 96 cents, or 2 percent, to $47.40 a share Monday. Halliburton’s shares rose 74 cents, or 1.8 percent, to $42.05.