Halliburton boosts asset sales in push for Baker Hughes deal

By DAVID WETHE on 1/25/2016

HOUSTON (Bloomberg) -- Halliburton Co. said it expanded its list of assets to sell as it tries to convince antitrust authorities around the world that its purchase of rival Baker Hughes Inc. won’t impede competition.

The Houston-based oilfield services company said it presented its new plan to the U.S. Justice Department earlier this month, though it had not disclosed which new assets it’s planning to divest. 

The threshold for total assets sold could climb to as much as $10 billion in 2013 revenue, up from Halliburton’s stated goal of $7.5 billion, James West, an analyst at Evercore ISI, wrote Monday in a note to investors. Halliburton declined to provide details of the plan during a conference call with analysts Monday to discuss its $28 million fourth-quarter loss. Spokeswoman Emily Mir also declined to name specific assets in an email responding to questions.

The European Commission, which was also informally notified of the additional divestiture plans, said Jan. 12 it was concerned about the potential loss of competition if the world’s second- and third-largest service companies were to merge. The Justice Department said in December it wasn’t satisfied at that time with Halliburton’s proposal.

"There is no agreement to date with the DOJ or EC as to the adequacy of the proposed divestitures," Dave Lesar, CEO, told analysts and investors Monday on a conference call. "We remain committed to seeing this deal through, despite the extended time required to obtain regulatory approvals."

Declining Value

The cash and stock deal was valued at $34.6 billion when it was announced near the end of 2014, just as oil prices had begun their downward spiral. Shares of both companies have dropped more than 30% since then. Halliburton would have to pay Baker Hughes a breakup fee of $3.5 billion if the deal is dropped.

Halliburton cut nearly 4,000 additional workers in the fourth quarter, bringing its total reductions to almost 22,000, or 25%, of its global workforce since staffing reached its peak in late 2014, Mir wrote in an email. Additional charges may be taken in the first three months of this year related to cutbacks, Christian Garcia, the company’s interim CFO, said on the call.

"The industry faces the prospect of severe duress in the coming months," Jud Bailey, an analyst at Wells Fargo in Houston, wrote earlier this month in a note to investors. As oil prices have continued falling in 2016, producers are re-evaluating their budgets and drilling rig commitments "to assess the most cost-effective areas to pull back activity," he wrote.

Industry Gridlock

The worst oil market downturn in 30 years is causing gridlock. Customers do not know how much, when or where to spend money on oilfield activity in North America, Lesar said.

A provider of drilling and production services, Halliburton reported a fourth-quarter net loss of $28 million, or 3 cents a share, compared with $901 million, or $1.06 share a year earlier. Excluding certain items, the per-share result for continuing operations was 31 cents a share, higher than the 24-cent average of 35 analyst estimates in a Bloomberg survey, according to the company’s statement Monday.

Halliburton beat estimates mainly because year-end sales of well-completion tools in North America helped boost margins, said West, who rates the shares a buy and owns none. The operating profit margin in North America climbed to 1.9% from 0.3% in the third quarter.

"We were looking for a slight loss" in North America, he said. "A little bit of a surprise there."

The quarter included $192 million, or 22 cents a share, in charges related to layoffs and the writedown of asset values.

Halliburton fell 3% to $29.28 on Monday in New York.

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