Halliburton And Baker Hughes Merger

Why Halliburton is merging with Baker Hughes

The Halliburton Baker Hughes merger will be the largest merger in the history of the oilfield services industry. The original deal was announced in November 2014 and will end up with Halliburton acquiring Baker Hughes for $34.6 billion in stock and cash. Halliburton’s many reasons to merge with Baker Hughes include increased efficiency, technological advantage and market development and penetration.

Who are Halliburton and Baker Hughes?

Halliburton and Baker Hughes are two of the world’s leading companies in the oilfield services market segment. Halliburton was founded in 1919 by Erle P. Halliburton in Duncan, Oklahoma. Its origins were in oil field cementing. Halliburton is currently the second

The deal agreed upon in November 2014 will give shareholders for BHI 1.12 shares of Halliburton stock and $19 per share of currently owned BHI stock. This equates to a 41% premium valuation as compared to the value of BHI the day prior to the initial offer. Based on this information, Halliburton will acquire BHI for $34.6 billion using 76% Hal stock and 24% cash. The final portion of the agreed deal specifies that Halliburton and Baker Hughes both divest certain businesses in order to pass anti-trust laws. Halliburton will divest its drill bit manufacturing business and directional drilling business. Baker Hughes will divest many of its offshore cementing units in the Gulf of Mexico and throughout the world. The deal is currently being reviewed for compliance with anti-trust laws by the United States Department of

Halliburton has created a chart (Figure 1) to show where these estimated savings lie. The savings will come mainly from increased efficiency in operations and organization. Currently Halliburton and Baker Hughes have many offices located in the same places with overlapping coverage (Figure 2). The merger allows the new Halliburton Company to operate its offices throughout the world on a larger scale instead of having smaller less efficient offices. Larger local offices will allow Halliburton to provide more efficient services in currently located areas. Baker Hughes’ North American operating margin alone is 7% below Halliburton’s. This leaves significant room for improvement in operating margins following the merger. Halliburton believes through the merger they can target $1 billion in annual fixed costs through the increased efficiency and the elimination of duplicated