Halliburton & Baker Hughes Up On Merger Talks

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Four o’clock in the afternoon is a favorite time of the day for the executives of U.S.-listed companies to make major announcements. And when they do, they can generate a flurry of activity from the trading floor to the front page.

Technically, there has been no major announcement from either Halliburton (NYSE:HAL) or Baker Hughes (NYSE:BHI), but newspapers love to do the same thing. It was right around that time today that the Wall Street Journal reported that Halliburton has been in takeover talks with Baker Hughes and that a merger could happen soon. The share prices of both companies took off like a moonshot.

Immediately following the WSJ report, Halliburton’s share price went from 50.83 to 56.99, an increase of just over 12% in a span of 12 minutes. Baker Hughes shares went from 48.65 to 61.28, a simultaneous 26% increase that lasted six minutes longer. Halliburton closed at 53.74, while Baker Hughes tapered off to 58.98. Each stock is up in after hours trading, 1.49% and 3.34%, respectively.

Biggest Ever?

Up until the WSJ report, the biggest news of the day was probably falling oil prices. Now it is about what could be the biggest M&A deal in the energy sector.

The following video from CNBC offers a perspective on the activity on the floor of the New York Stock Exchange following the breaking of the news. (Click on the image to start the video.)

The “Hughes” in Baker Hughes was the legendary Howard Hughes. The company website says that “Baker Hughes was formed in 1987 with the merger of Baker International and Hughes Tool Company—both founded over 100 years ago when R.C. Baker and Howard Hughes, Sr. conceived ground-breaking inventions that revolutionized the fledgling petroleum era.” The company employs more that 60,000 people in more than 80 different countries. BHI had annual revenue of $22.4 billion in 2013, generating a net income of $1.1 billion. It has a market cap of $25.4 billion.

Halliburton is one of the world’s largest providers of products and services to the energy industry. With more than 80,000 employees, representing 140 nationalities in approximately 80 countries.” It had sales of $29.4 billion in 2013 with a net income of $2.1 billion. It has a market cap of $45.58 billion, so we are not talking about a little bit of loose change here.

As the video explains, the merged companies would become one of the most powerful “cradle-to-grave” companies in the oil services business, providing everything that major oil producers need from one end of the stream to the other. You might call it a “one-stop-shop.”

Some are questioning the potential of running into antitrust roadblocks from the Obama administration, but if I have ever learned anything, I’ve learned that the politics needed to avoid those potholes does not come after an official announcement when dealing with mergers of this scale. They’ve likely already taken place in someone’s back room.

Hang on folks, this could be fun!

 

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