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Two people familiar with the matter, who spoke on condition of
anonymity, said Halliburton was looking to buy Baker Hughes, in what
would be the second-largest energy deal of this year.
Oil prices have slid by a third since June, eroding demand for
drilling services and pummeling stock prices across the energy
sector. That has prompted a flurry of chatter among executives and
bankers about acquisition opportunities.
A tie up between the No. 2 and No. 3 players in the services
industry might allow them to better weather the downturn and resist
pressure from oil producers to slash prices.
Baker Hughes said in a statement it has "engaged in preliminary
discussions with Halliburton Company regarding a potential business
combination transaction."
Halliburton declined to comment on the talks, which were first
reported by Dow Jones and in The Wall Street Journal.
A potential merger would create a drilling, logistics and well
services giant worth $67 billion, initially with 140,000 employees.
But the merged entity would be only half the size of industry leader
Schlumberger, which has a market capitalization of $125 billion.
If a deal were struck, the companies could well have to sell assets
to convince regulators they would not hurt competition, said Seth
Bloom, a veteran of the U.S. Department of Justice's antitrust
division now in private practice.
"The question with mergers like this is are there divestitures of
submarkets that can solve the problem," Bloom said. "It's clearly
not a slam dunk to approval but it's not automatic that you can't
get it through. You have to drill down to see what the markets are
like."
The deal is also likely to draw the scrutiny of regulators in
Europe, China, Brazil and Mexico, others experts said. Arguably, the
antitrust concerns would be greatest outside the United States,
where there are relatively few services companies.
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There are at least seven major product lines where there is overlap
between the two companies. The companies offer scores of services
and technology, from drill bits, to cementing and casing work, to
artificial lift systems that improve output from wells.
An analyst who follows the company and did not want to be quoted
said Halliburton could get the deal down with a mix of debt and
equity and still maintain its investment rating.
News of the talks sent shares of another services company,
Weatherford International Plc, which has long been seen as
vulnerable, up nearly 6 percent.
Baker Hughes shares were halted in New York Stock Exchange trading
due to volatility. They later reopened and shot up 18 percent.
Halliburton shares rose as much as 3.5 percent before trimming gains
at the close.
The last major deal in the energy industry, announced in August and
worth some $70 billion, was pipeline giant Kinder Morgan Inc's move
to fold its various units into a single entity.
(Additional reporting by Mike Stone, Anna Driver, Diane Bartz; and
Bangalore newsroom; Editing by Grant McCool)
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