Most people are probably aware by now that the merger between Baker Hughes and Halliburton was cancelled after multiple regulatory agencies expressed opposition to the combination. The terms of the merger stated that in the case of a cancellation, Halliburton would owe Baker Hughes a hefty $3.5 billion, which is 10% of the overall value of the merger.
The agreement to merge was first announced at the end of 2014, but it was stalled because of concerns that the combined companies might dominate the market. Halliburton and Baker Hughes attempted to sell some of these assets, but the poor market conditions in the oil and gas field gave companies reason to hesitate in buying them. Consequently, Halliburton and Baker Hughes were forced to hold on to these assets and regulatory authorities were not satisfied.
Baker Hughes will use most of the funds in an attempt to strengthen the company’s financial structure as it sets out on its own in this tumultuous market. The company plans to use $1.5 billion to repurchase Baker Hughes’ shares, and about one billion will be used to refinance and purchase debt.
Baker Hughes also stated that a portion of the funds will be used to cut some of the costs that accumulated in the first quarter of this year. Baker Hughes claimed that the pending merger forced it to hold on to $110m of costs that could not be dealt with until a decision was made. Halliburton and Baker Hughes will now pursue their individual paths as the oil price slowly begins to gain some of it’s lost ground.
Article written by HEI contributor Timothy McNally.