Halliburton acquires Baker Hughes in $34 billion deal

Halliburton is acquiring Baker Hughes for US$34.6 billion in a stock and cash deal. According to the definitive agreement, which has been unanimously approved by both companies’ boards of directors, the transaction is valued at $78.62 per Baker Hughes share, which equals to an equity value of $34.6 billion and enterprise value of $38 billion.

Under the terms, stockholders of Baker Hughes will receive a fixed exchange ratio of 1.12 Halliburton shares plus $19 in cash, for each share. The value represents a premium of 40.8 percent to the stock price of Baker Hughes on 10 October 2014, the day before Halliburton’s initial offer to Baker Hughes. Over longer time periods, it represents a one-year, three-year and five-year premium of 36.3 percent, 34.5 percent, and 25.9 percent, respectively. Upon completion of the deal, Baker Hughes stockholders will own about 36 percent of the combined company.

“The stockholders of Baker Hughes will immediately receive a substantial premium and have the opportunity to participate in the significant upside potential of the combined company,” said Dave Lesar, Halliburton chairman and CEO. We expect the combination to yield annual cost synergies of nearly $2 billion. As such, we expect that the acquisition will be accretive to Halliburton’s cash flow by the end of the first year after closing and to earnings per share by the end of the second year. We anticipate that the combined company will also generate significant free cash flow, allowing for the return of substantial capital to stockholders.”

Halliburton says it has agreed to divest businesses that generate up to $7.5 billion in revenues, if required by regulators, although the company believes that the divestitures required will be significantly less. Halliburton has also agreed to pay a fee of $3.5 billion if the transaction terminates due to a failure to obtain required antitrust approvals and is confident that a combination is achievable from a regulatory standpoint.

Although the deal is subject to approvals from each company’s stockholders, regulatory approvals and customary closing conditions, it is expected to close in 2H 2015. At that time, the combined company will maintain the Halliburton name and remain headquartered in Houston and Lesar will continue as chairman and CEO of the combined company. After completion, Halliburton expects to combine the company’s board of directors and expand to 15 members, three of whom will come from the Baker Hughes board.

After rumors of the possible merger leaked, Baker Hughes’ stock price rose approximately 15 percent. Alternatively, Halliburton’s stock has not risen as dramatically following the news.

Baker Hughes has 61,000 staff working in more than 80 countries. Halliburton has about 80,000 staff in about 80 countries.