Baker Hughes, a rival company of Halliburton’s, providing oilfield services will soon be bought by the latter for a deal worth US$ 34.6 billion. Such a step denotes the immediate impact that falling prices have on the energy industry. Over the past five months, worldwide oil prices have declined by almost 31%. Fall in oil prices are forcing the oil services companies to resort to cost cutting by either scaling back drilling or delaying the same. Thus, this means lesser work for Baker Hughes and Halliburton. These are companies that manage gas and oil fields for several energy firms all over the world.
In fact, even when oil prices were surging, several oil and gas companies had started reducing capital spending and newer drilling activities since increasing costs were eating into the profit margins. Energy companies hardly have any more resources for further spending. According to senior officials at Halliburton, costs will be reduced by almost US$ 2 billion when the two companies get merged. The price tag on Baker Huges also decreased due to the oil plunge. Baker Hugh’s market capitalization came down by US$ 10.4 billion due to fall in its shares by 32%.
There will be more business deals in the energy industry with strong and financially sound companies buying those units which are witnessing a drop in their business worth. During a recently held investor meeting, ExxonMobil stated that the current time is ideal for purchasing undervalued assets. Baker Hughes Inc. will be paid US$ 78.62 per share by Halliburton, a premium of 31% over its closing price on Friday which was US$ 59.89. As a result, the shareholders of Baker Hughes will receive 1.12 shares of Halliburton and also US$ 19 in cash for each of the shares that they own. At the end of the transaction, the stock holders of Baker Hughes will own almost 36% of the shares of the combined company.