Life After Halliburton: Should Baker Hughes-National-Oilwell Be Next?

Following the US Department of Justice’s [DoJ] suit to block the merger of oilfield services giants Baker Hughes Incorporated BHI and Halliburton Company HAL, the chances of regulatory approval appear low. JPMorgan’s Sean C Meakim maintained a Neutral rating for Baker Hughes, with a price target of $36, saying that a stock-for-stock merger of equals with National-Oilwell Varco, Inc. NOV may be “the best route to value creation over the next cycle.”

Next Steps For Baker Hughes

The agreement between Baker Hughes and Halliburton is scheduled for expiration on April 30. Baker Hughes could choose to merge with a capital equipment manufacturer or turn its focus towards its “more product-oriented core,” analyst Sean Meakim noted. He added, “We think either path would benefit investors in lieu of returning to “business as usual”.”

Meakim pointed out, however, that the merger deal between Baker Hughes and Halliburton was not dead, and Halliburton is likely to “fight vigorously to find a path to deal completion and avoid the $3.5bn breakup fee.”

Merger With National-Oilwell

A merger between Baker Hughes and National-Oilwell would be more than “just a marriage of convenience,” Meakim commented. He added, “Neither side needs a transaction from a balance sheet perspective, but each could benefit strategically.”

While National-Oilwell’s exposure is limited, and its best business may not see a significant upturn in demand for a decade. The company would be interested in diversifying more into onshore. On the other hand, Baker Hughes “has a strong stable of product lines but has struggled with execution in recent years,” the analyst mentioned.

Such a deal would not face significant regulatory hurdles, and “our analysis indicates a stock-for-stock deal could create more long-term value for shareholders,” Meakim said.