Last week it was reported that Halliburton Company (NYSE:HAL) was in talks to acquire Baker Hughes Incorporated (NYSE:BHI), but this morning, an official deal has been announced. In a press release, the two companies said Halliburton and Baker Hughes will merge in a cash and stock deal worth $34.6 billion.
Terms of the Halliburton – Baker Hughes deal
Shareholders of Baker Hughes will receive 1.12 Halliburton shares plus $19 per share in cash for every share they own. That places a value of $78.62 per share on Baker Hughes as of Nov. 12. The acquisition deal amounts to an equity value of $24.6 billion and an enterprise value of $38 billion, based on Halliburton’s closing price on Nov. 12 before it was publicly revealed that the two companies were in talks.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
The value is 8.1 times current consensus estimates for 2014 EBITDA and 7.2 times current estimates for 2015 EBITDA. It’s a 40.8% premium on Baker Hughes’ share price on Oct. 10, the day before Halliburton made its initial acquisition offer.
After the acquisition is complete, current shareholders of Baker Hughes will own about 36% of the combined company. The boards of both companies have unanimously approved the deal.
The combined company
The companies expect the acquisition to be accretive to Halliburton’s cash flow by the end of the first year. They estimate almost $2 billion in synergies and “significant cash flow” that will support future capital returns to the combined company’s shareholders. On a pro forma basis, the two companies combined had $51.8 billion in revenues last year, over 136,000 employees, and a presence in over 80 countries.
Halliburton plans to finance the cash part of the deal through cash on hand and already committed debt financing. The deal is expected to close in the second half of next year. The combined company will continued to trade under the ticker symbol “HAL” on the New York Stock Exchange and have its headquarters on Houston.
What analysts say about the Halliburton – Baker Hughes deal
Analysts began weighing in on the proposed acquisition last week after the first media reports about it surfaced. Deutsche Bank analysts note that the deal combines the second and third biggest oil services companies and say that it shifts the market dynamic back toward the service industry. They say the service side of the industry has been facing a market power decline in the last few years as the operators grew relatively and also more recently due to the decline in oil prices.
The deal also closes the gap between Halliburton the first-place player Schlumberger Limited. (NYSE:SLB). However, the Deutsche Bank team thinks the concentration in a number of sub-sectors could face challenges from anti-trust regulators.
In their report last week, UBS analysts mentioned other risks, like Halliburton taking on Baker Hughes’ “less efficient” pressure pumping business. They add that an acquisition of this time could take at least a couple of years for Halliburton to finish “fully digesting” and might be a distraction to its strategic initiatives. They also believe that the corporate culture at the two companies is very difficult and that it may take some time for them to become truly unified.