Halliburton Company HAL is currently in advanced talks with energy conglomerate General Electric Co. GE pertaining to which, the latter is likely to purchase the drilling services and bits divisions of the former.
Stance of Halliburton Company
Halliburton has proposed to divest parts of its business to proceed with the $35-billion takeover of rival Baker Hughes Inc. BHI. The regulators, however, are not very eager on this deal as it would involve the merger of the world’s second and third-largest oilfield-services providers. This, in turn, would lead to higher prices, lesser innovation and reduced competition in the oilfield services industry.
Though Halliburton has offered to sell some assets to other companies to repress antitrust concerns expressed by the Justice Department, the officials remain anxious. When Halliburton announced its plan to acquire Baker Hughes in Nov 2014, the cash and stock deal was valued at $34.6 billion. Accordingly, Halliburton decided to divest assets to generate revenues of about $7.5 billion.
In Apr 2015, Halliburton put up its first assets for sale – drill bits and drilling services business. The drill bits unit produces the tips of drills used for digging wells and was valued at about $2 billion in March. The drilling services arm, which is embedded in Sperry Drilling, utilizes data to track and navigate the direction of drill bits. This segment was estimated to raise about $3 billion, at the time.
A second group of asset sales was announced by Halliburton in Sep 2015. This included businesses essential for building new wells and controlling the flow of oil.
Stance of General Electric
Over the past decade, General Electric has been exploring options to sharpen its focus on industrial products while farming out consumer-focused and lending operations. As a result, the company has acquired oil and gas related assets worth over $10 billion. This includes a $3.3 billion deal in 2013 for Lufkin Industries Inc. Though the fall in oil prices has unfavorably impacted the company’s GE Oil & Gas unit, it is still eager to keep expanding.
Interestingly, General Electric has been divesting its parts. The latest deal was the sale of the energy conglomerate’s asset management arm to an investment management firm, last week.
Nonetheless, General Electric has shown interest in other assets that Halliburton intends to sell, including parts of Baker Hughes’s completions operations. However, Halliburton is still evaluating the bids received from a number of private equity firms and industrial companies. No deal has been finalized between Halliburton and General Electric, as the former is yet to decide upon a buyer. Among others, Weatherford International Plc WFT and Nabors Industries Ltd. are also bidding for the services entity.
Per the sources, final offers for both the units are due within four weeks.
Approval Status
Halliburton’s bid for Baker Hughes has been facing antitrust hurdles. Last month, the company sought European Union’s approval for the takeover. This was the second time that the company has requested for the approval. The regulators had overruled an earlier filing related to the bid four months ago.
Per Halliburton management, though the timeline to close the merger has already been deferred by three weeks to at least Dec 15, 2015, there remains a strong possibility that the deal will not close before 2016.
Both the U.S. officials and the Justice Department remain unconvinced about the proposed transaction. The European Commission has scheduled an initial deadline of Jan 12, 2016. However, it may still decide to open a thorough probe over a period of about four months if remedies fail to dispel concerns regarding competition. Australia’s competition watchdog has also interrogated the transaction, and postponed its decision until Dec 17, 2015 after demanding more observations from market participants.
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