Halliburton will buy Baker Hughes for about $35 billion in cash and stock, creating an oilfield services behemoth to take on market leader Schlumberger as falling oil prices threaten to erode demand. Bobbi Rebell reports.
Cheap oil is shaking up the oil sector- it's part of the reason Halliburton is paying close to $35 billion to buy rival Baker Hughes. Oil prices have dropped below $80 a barrel - thanks to higher supplies and lukewarm demand growth. And when the big oil companies start to feel the pressure on their profits, margins at the services companies will be under threat. The combo of the second and third biggest oilfield companies is an attempt to better compete with the market leader- Schlumberger. After rising on word of talks last week, shares of Halliburton took a hit. Investors were put off by the price: Reuters Mike Stone: SOUNDBITE: MIKE STONE, M&A CORRESPONDENT, REUTERS (ENGLISH) SAYING: "This is a transformational deal. Overpaying is relative. They are using their stock to get some of this deal so its a cash stock mix. And maybe they are paying quite a bit. They are paying over a 50% premium, right? Just above the 52-week high for Baker Hughes. But this is a transformational deal. It is in theory going to help them with margins moving forward in a low oil price environment and it will also help them compete against Schlumberger. " Halliburton is also on the hook for a $3.5 billion break-up fee if the deal does not happen- and has already said its willing to divest businesses that generate a hefty $7.5 billion to get the deal done- a red flag pointing straight to anti-trust concerns. There are 7 major services where there is overlap between the two companies. In fact, while Baker Hughes stock traded higher on word of the deal, it is still well below the per share offer price of more than $80 per share, based on Friday's close. SOUNDBITE: MIKE STONE, M&A CORRESPONDENT, REUTERS (ENGLISH) SAYING: "These companies began speaking on October 13th. It's now a little more than a month later. That's a very quick timeline. It's very difficult to say if they have been able to do all of their homework on anti-trust, but a lot of lawyers have spent a lot of sleepless nights trying to see if this deal is feasible." The new company would be the second biggest in the U.S. energy sector - but would have more revenue that Schlumberger.