Baker Hughes: A victim of shareholders activism or oil glut?

 

                                                                  by Sunny Oputa

 

One thing is clear, while pundits continue to wonder whether Baker Hughes was a victim of shareholders activism or oil glut, its acquisition by Halliburton has opened new vista for more M&A by independent exploration and production companies and oil service companies especially if the price of oil continues to plummet or the efficiency of the market become more suspicious.  

After a week of bickering, hard knocks, negotiations and board room politics, Baker Hughes the third largest oilfield services company is finally stooping on the corporate canvass under the weight of pressures from majority of its shareholders to be pinned-down in a swift merger and acquisition by Halliburton, the second largest oil service company.

 

The move to get Baker Hughes off the radar and be merged into the Halliburton family did not come as a surprise to many insiders because Baker Hughes has always had merger and acquisition as its second name since its inception in the 1900s.  Baker Hughes has always bought over many oilfield technology providers to remain competitive. However, now it is the one been bought by Halliburton, a move which is considered by many as strategic and fuelled by shareholders activism which is becoming a major concern in corporate corridors. 

The merger and acquisition of the two companies is also a smart move to ensure survival considering the current trend in the global market where oil glut has led to a sharp decline in the price of oil. The market volatility and envisaged uncertainties are already making mega oil companies to come out with plans to reduce capital spending next year.  

 

While both Halliburton and Baker Hughes expect their 2014 net income and profit to drop due to deterioration in revenue, it becomes certain that operating on their individual levels would strengthen and increase Schlumberger’s competitive advantage which could make them to lose more market shares. The 2013 financial picture where Schlumberger’s net income of $6.77billion was twice the net income of both Halliburton and Baker Hughes which was $3.2billion and revenues of $51.76 of both companies which was nothing outstanding when juxtaposed with Schlumberger’s $45.27 simply indicated who the market leader is and provided reason for the shareholders to re-think.

 

Unfortunately, as Halliburton got eager to remain afloat and competitive to ensure shareholders value, market analysts were aghast with the vitriolic war strategy and swift launch of  shareholders activism that eclipsed Baker Hughes to quickly get down on its knees to be acquired by Halliburton at the tune of $35 billion. As the merger and acquisition is finally been consummated industry experts are still of the opinion that for the next 5 years Schlumberger would continue to be the market leader and other oil service companies such as Weatherford, National Oilwell  Varco and GE might benefit from the market unless the new Halliburton restructures fast enough to prove that their merger would provide low cost and better service to the customers, and act which Schlumberger fine tunes through its tremendous innovative culture.

 

Again, the restructuring of the new Halliburton could lead to massive retrenchment, collisions of organizational cultures and complexities of strategy which might turn out to be its Achilles feet. As Halliburton hopes to overcome the anti-trust hurdles in United States, Europe and Asia, It is not yet clear what the new organizational structure would look like and the  management team that will  lead the company. One thing is clear, while pundits continue to wonder whether Baker Hughes was a victim of shareholders activism or oil glut, its acquisition by Halliburton has opened new vista for more M&A by independent exploration and production companies and oil service companies especially if the price of oil continues to plummet or the efficiency of the market become more suspicious.  

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