WithHalliburton Co.waiting to announce its first-quarter earnings until after an April 30 deadlinefor its merger with Baker HughesInc., analysts are becoming increasingly convinced that the deal isdoomed.
Alreadyplagued by multiple delays and a lawsuitfiled by the U.S. Department of Justice to block it, the oil-field services merger has been on thinice for some time. Halliburton's decision to push its earnings release back toMay 3 — and its citing of the merger deadline for doing so — has observersspeculating that the company is preparing to throw in the towel.
"Wedon't think [Halliburton] would delay its Q1 earnings call until after April30, 2016 … if it felt good about the likelihood of this merger eventuallyconsummating," Tudor Pickering Holt & Co. said in an April 25 note. "[Itis] also telling that [Halliburton] decided to reduce infrastructure previouslymaintained in anticipation of [the Baker Hughes] acquisition."
Thedeal was struck in a very different environment for the two companies:Halliburton's stock price, currently at about $40, stood at $55.08 the lasttrading day before the deal was announcedin November 2014 with a valuation of $34.6 billion. Baker Hughes' shares havetaken a similar beating, dropping from $59.89 before the deal and $65.23 at theclose on the day of the merger announcement to $45.04 on April 25. According toa Jefferies analyst note, investors have already largely prepared themselvesfor the merger to collapse.
"[Halliburton's]postponement of reporting 1Q16 results until May 3rd likely reflects that itand/or [Baker Hughes] will likely terminate the merger agreement once itexpires April 30. We believe that investors largely expected this once the DoJfiled its suit to block the merger in early April and thus expect limited shareprice reaction," the firm said.
Jefferiesanalyst Brad Handler said in an interview that the DOJ lawsuit was likely oneobstacle too many for the merger to survive.
"TheDOJ pointed to three problems," he said. "The first was a very highmarket concentration in the Gulf of Mexico over a number of products. Thesecond was the nature of the remedy that Halliburton has offered to date wasincomplete with respect to contracts and even infrastructure. The third werereferences of providing integrated services. While that's not as big a part ofthe oil-field services business, it can become an issue."
Handlersaid a breakdown of the merger could be a major issue for Baker Hughes, whichwould find itself in need of spending money in a difficult environment for theindustry.
"Wethink it'll be harder for Baker to pull itself together and then to continue tobe a viable global competitor," he said. "We think it still hasinvestments to provide goods and services consistently, reliably across theglobe as is required by a major diversified oil-field services company. Wecould have said the same thing in 2014. It was making headway and has investeda lot since 2010, but it has much more to do, and now is not that time to doit."
Asfor Halliburton, Handler said the likelihood of another major deal in the nearfuture is slim.
"Wethink it will be more like their current form. They may try to explore ways toget at more production-based businesses, but we think Halliburton will look alot more like it does today than chasing after another big acquisition,"he said. "In this deal, there was a combination of goals, including marketconsolidation as well expanding product lines. I think there aren't many othercompanies built like Baker."