Halliburton is in talks to acquire Baker Hughes in a deal that is likely to value the oilfield services group at more than $20bn, a transaction that would mark one of the largest takeovers in the energy industry in recent years.
Dallas-headquartered Halliburton has been in talks with its smaller rival for some time, said people familiar with the matter, and a deal could be reached within weeks. Baker Hughes confirmed in a brief statement that it had held “preliminary discussions” with Halliburton which “may or may not lead to any transaction”.
Exact details about the terms being discussed could not be ascertained, but any acquisition of Baker Hughes would probably value the company at above its market value, which stood at $21.6bn before the Wall Street Journal reported the talks on Thursday.
A roughly 30 per cent fall in crude prices since June has sent oil companies’ shares plunging, and services companies such as Halliburton and Baker Hughes are expected to be among those hardest hit.
Oil and gas production companies, the service industry’s customers, will be forced to slow down their drilling and other activities, and encouraged to push for lower rates from their suppliers. The result is a double blow for service companies of reduced capacity utilisation and lower charges.
News of the talks sent Baker Hughes shares up 15.2 per cent to close at $58.75. Halliburton, with a market capitalisation of almost $48bn, closed up 1 per cent at $53.79.
One person familiar with the matter cautioned that there was no certainty of a deal being reached.
An agreement to combine Halliburton and Baker Hughes – the second and third largest listed oil services groups by market capitalisation – would probably draw scrutiny from US regulators.
Robin West of the Center for Strategic and International Studies said: “This deal would definitely raise concerns, if not necessarily on antitrust grounds, then definitely about competition in the industry.”
The oilfield services industry has seen a bout of consolidation recently, led by German industrial conglomerate Siemens’ $7.6bn takeover of US group Dresser-Rand.
Bringing Halliburton and Baker Hughes together would enable the combined company to cut costs by removing duplication and give it more bargaining power in negotiations with customers.
The biggest obstacle to a deal is likely to be resistance from those customers. Oil and gas production companies are generally suspicious of growing concentration in the service industry for the same reason that the suppliers are interested in it: the prospect that consolidation would encourage higher prices.
A takeover of Baker Hughes by Halliburton would make a significant difference to the industry’s structure, even in those areas where the two companies’ services do not directly overlap.