Baker Hughes/Halliburton could see bidders line up for possible divestitures, industry sources say
While a deal may still be cooking, oil and gas players are likely to be scrambling to look at possible asset acquisition opportunities which may stem from a possible combination of Halliburton (NYSE: HAL) and Baker Hughes (NYSE: BHI).
Baker Hughes confirmed on 13 November it was engaged in preliminary discussions with Halliburton regarding a potential business combination. Today Bloomberg reported that talks may have already stalled due to concerns about divestitures and disagreements over price, but negotiations could be revived.
The two giant oilfield service players have product overlap in too many areas to name, but a few specific areas that could lead to antitrust concern and subsequent divestment include drilling tools, chemicals, pressure pumping, drill bits and wireline, according to one industry banker. A previous report from this news service noted that the deal, if successful, could result in USD 7bn-USD 10bn in divestitures.
Several industry sources noted energy-focused private equity funds would be prime buyers for many of these assets. Among strategic buyers, players like Weatherford (NYSE: WFT), Superior Energy Services (SPN), National Oilwell Varco (NYSE:NOV) and Cameron (NYSE: CAM) were cited as logical names, but the banker noted that Halliburton and Baker Hughes would probably rather not sell assets to direct competitors.
As to the wireline business, which is likely to attract high levels of interest as it can be integral to the fracking process, two energy industry attorneys cited FTS International (NYSE: FTSI) as a logical bidder, and one further added that FTS had “immense capabilities” to afford such a deal. On 3 November, FTS International acquired J-W Wireline Company, one of the largest independent cased-hole wireline companies in North America, for an undisclosed amount. J-W Wireline has 400 employees.
FTS International was not immediately available to comment.
In the chemicals space, where the banker noted that Baker Hughes is number one in market share, one logical bidder could include Ecolab (NYSE: ECL),which provides water, hygiene and energy technologies and services, according to one energy consultant and one energy attorney. Ecolab, which serves several segments of the oil and gas industry, acquired Champion Technologies for USD 2.2bn at the end of 2012.
Ecolab did not immediately return request for comment.
In pressure pumping, Patterson UTI (NASDAQ: PTEN), and RPC Inc. (NYSE: RES) could be possible suitors, an industry executive said. Patterson closed several pumping asset buys in October, the executive noted. C&J Energy Services (NYSE: CJES) also operates in the space, but is focused on integrating its pending merger with the North American completion and production business of Nabors Industries (NYSE: NBR), the executive said. C&J did not return calls for comment. Patterson and RPC could not be reached for comment.
The banker noted that with so many players in pressure pumping, divestitures in that space may be less notable.
While GE (NYSE:GE), with its vast oil and gas presence, was mentioned as a possible suitor by the banker, one of the energy attorneys said it was his opinion that GE was more interested in manufacturing related to the oilfield service space. With its CEO Jeff Immelt moving away from lower-margin businesses, recently announcing it would sell its appliances business, it has been moving toward higher-margin products such as jet engines and electric turbines, he explained. For example, it acquired Lufkin Industries, which manufactured pump jacks, for USD 3.3bn in April 2013.
The banker also noted that GE is occupied with its proposed energy sector alliance with France’s Alstom (FR: ALO), so the timing is not ideal.
Goldman Sachs is advising Baker Hughes, and Credit Suisse is advising Halliburton, as reported.