Halliburton’s urge to merge

A tie-up between Halliburton and Baker Hughes would create the biggest oil services group by revenue.

Halliburton, the world's second-biggest oil services group, has agreed a $34.6bn takeover of its smaller rival, Baker Hughes. The tie-up of the two American companies will create the biggest oil services group by revenue, eclipsing Schlumberger. Halliburton clinched the deal after starting talks in mid-October.

What the commentators said

Deals this big "usually take months to consummate", noted Matthew Philips on Businessweek.com. But falling oil prices down 30% since June have "spooked both companies". They fear that it won't be long before oil becomes too cheap for many firms to prospect for it profitably, implying less money for their drilling and fracking services.

A record number of oil rigs are operating in the US, more than in the rest of the world combined. "It's doubtful those numbers can withstand such a steep drop in prices."

Given these "terrible fundamentals", Baker Hughes "wangled itself a spectacularly advantageous deal", said Lex in the FT. Halliburton has paid a 54% premium, it will divest businesses worth $7.5bn in sales to placate regulators, and it has agreed to a $3.5bn break-up fee for Baker Hughes in case the competition authorities do derail it.

Meanwhile, targeted cost savings look unrealistic, reckoned Kevin Allison on Breakingviews. And as the firms are "fierce competitors", there will be ample scope for "debilitating culture clashes".

If well-capitalised Halliburton "has such a feverish desire to consolidate", said Lex, it could "signal a painful reckoning for smaller, more leveraged companies".The merger could even prolong a downturn, added Christopher Helman on Forbes.com.

It will now be far harder for oil firms to "lean on" service providers for a better deal, thus making it harder for them to afford exploration. Baker Hughes, less profitable than its rivals, would have been "especially susceptible to arm twisting". No longer.

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