Will Halliburton’s Proactiveness Work In Its Favor?

The high profile deal between Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI) is in the news again, as the two oilfield services companies have decided to sell assets worth $5.2 billion, in addition to Halliburton’s $7.5 billion of assets already marketed for sale, to obtain the regulatory approvals for their $34.6 billion merger ^[1]. Apart from the asset sale, the companies have also extended the time-frame for the US Department of Justice’s (DOJ) antitrust review to 15th December from the previous deadline of 25th November. Even though the companies have not reached an agreement with any of the regulators regarding the adequacy of the divestitures, the sale of these additional assets indicates the inclination of Halliburton’s management to complete the merger within the deadline, i.e. 16th December 2015.

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Even before the announcement of the merger, Halliburton was fully aware that the deal would give rise to a number of antitrust issues. Consequently, the company had offered to pay a sum of $3.5 billion to the shareholders of Baker Hughes in case the deal does not pass through due to regulatory concerns. Furthermore, the oilfield giant had announced the sale of its drill bits and drilling business worth $7.5 billion, earlier this year. However, the company was unsure if the sale of these assets would be sufficient to obtain the regulatory clearance for the merger. Besides, the recent rumors around the possibility of the US DOJ requiring Halliburton to sell the two assets as a consolidated unit to a single buyer increased the uncertainty around the completion of the merger within this year. (Read: Halliburton-Baker Hughes Merger In Trouble Again?)

Source: Google Finance

Accordingly, the two companies have proactively announced the sale of additional assets worth $5.2 billion, to be completed within the deadline of completing the merger, to reduce the ambiguity and ensure timely federal approvals. While Halliburton will divest its expandable liner hangers business, Baker Hughes plans to shed off its core completions business (packers, flow control tools, and subsurface safety systems), its sand control business in the Gulf of Mexico, and its offshore cementing businesses in Australia, Brazil, the Gulf of Mexico, Norway, and the UK. While it is still unknown if the antitrust authorities will clear the deal on the basis of the combined asset sale proposed by the two companies, it is evident that the two companies are not leaving any stone unturned to meet the mid-December deadline to complete the merger. One will have to watch and see if these efforts will enable Halliburton to meet its December timeline for the merger completion.

Source: Barclays CEO Energy Power Conference, September 2015

On a different note, Halliburton has been actively managing its workforce to bring down its operating costs in the current downturn. Recently, the company announced that it had further reduced its workforce by close to 2,000, representing almost a 19% reduction in the company’s headcount over the last one year. This retrenchment has been concentrated in the North American region, since the region has been the worst hit by the current commodity down cycle. Further, the Houston-based company is likely to see further job cuts in the near future, even at the managerial level, to flatten the structure of its businesses and reduce its costs. However, these layoffs are not related to the company’s merger with Baker Hughes in any way.  We expect that Halliburton’s cost cutting initiatives will enable the company to curb its operating costs and emerge from the current challenging oil price environment as a much leaner and meaner entity.

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1. Halliburton and Baker Hughes Announce Additional Divestiture Proposal [↩]