Halliburton May Grow Alone as Schlumberger, Baker Do Takeovers
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Feb. 23 (Bloomberg) --Halliburton Co., the world’s second- largest oilfield-services provider, may focus on growing from within by boosting market share as its top competitors work on completing two of the industry’s biggest takeovers on record.
Houston-basedHalliburtonis already positioned to compete in the hottest growth areas -- deepwater and U.S. shale-gas projects -- so it doesn’t need to rush to counter deals by Baker Hughes Inc. andSchlumberger Ltd.with a takeover of its own, saidRoger Read, an analyst at Natixis Bleichroeder in Houston.
“If you think about where the growth is right now, it’s shale and it’s deepwater,” said Read, who has a “buy”ratingon Halliburton and owns about 500 of its shares. “Halliburton has a very enviable position in shale, and they certainly are among the leaders in the deepwater area.”
Schlumberger said Feb. 21 that it’s acquiring Houston-based Smith International Inc. for about $11 billion in stock, partly to accelerate advances in shale-gas drilling. That acquisition, the industry’s biggest since Bloomberg began tracking merger data more than a decade ago, followed a deal announced in August by Baker Hughes to buy BJ Services Co. for about $6.5 billion.
Halliburton, which ranks ahead ofBJas the largest North American provider of pressure-pumping services used to crack open shale formations, doesn’t need a major takeover to compete with Schlumberger and Baker Hughes, saidPierre Conner, an analyst at Capital One Southcoast in New Orleans who has an “add” rating on Halliburton shares and owns none.
The company may make small deals that attract customers with new technologies or lower costs, Conner said.Brad Handler, an analyst at Credit Suisse in New York, said Halliburton also may look for transactions that strengthen certain niches.
Weatherford International
“I don’t think they feel the need to rush out and do anything today,” said Handler, who has an “outperform” rating onHalliburtonshares and owns none.
Weatherford International Ltd., the world’s largest provider of so-called artificial-lift services that help producers boost oil and natural-gas flows, has technology that may be of interest to Halliburton, Handler said.
“But that’s a really different statement than sayingWeatherforditself feels like a good fit,” Handler said.
Weatherford, based in Switzerland, is a high-growth company whose culture wouldn’t necessarily jibe with Halliburton’s desire to be a market-share leader, saidPhilip Weiss, an analyst at Argus Research in New York who has a “hold” rating on Halliburton shares and owns none.
Like Jack Welch
“You have to remember that their general philosophy is kind of like the oldJack Welch-GEphilosophy: We want to be one or two in whatever we do,” Weiss said.
Cathy Mann, a Halliburton spokeswoman, and Weatherford’sNicholas Geedidn’t respond to messages seeking comment on their strategies in the wake of the Schlumberger-Smith deal.
Halliburtonfell 77 cents, or 2.4 percent, to $31.02 yesterday in New York Stock Exchange composite trading. Weatherford rose 13 cents to $16.73.
Schlumberger’s purchase may pressure Halliburton to accelerate or more aggressively pursue acquisitions it’s been working on, saidTom Curran, an analyst at Wells Fargo Securities. Artificial lift may become a “must-have” business for Halliburton, Curran said in a note to clients.
Halliburton may benefit as Schlumberger, based in Houston and Paris, andBaker Hughesare distracted by their efforts to complete mergers and integrate the operations of acquired companies, analysts said. Schlumberger and Baker Hughes are the world’s biggest and third-largest oilfield contractors.
Distracted Rivals
Handler, the Credit Suisse analyst, said Houston-basedBaker Hugheshas been restructuring its operations around the world, and closing of the BJ deal will bring more integration work. The transaction, which was scheduled to close as soon as last year’s fourth quarter, is slated for completion in March.
Based on Feb. 18 closing prices, before takeover talks were reported, Schlumberger agreed to pay Smith 37 percent more than its market value. Read of Natixis Bleichroeder called the price “pretty rich” and said it may giveHalliburtonpause in pursuing its own deals.
“If you’re Halliburton and you look at the price paid bySchlumbergerfor this transaction, you’re not feeling any particular pressure to go do something right now,” Read said.
Halliburton Chief Executive OfficerDavid Lesarhas spent some of his time coping with fallout from deals by his predecessor. Lesar replacedDick Cheney, who was Halliburton’s CEO before becoming U.S. PresidentGeorge W. Bush’srunning mate in 2000. Cheney formed the company’s KBR Inc. unit after acquiring Dresser Industries Inc. in 1998.
The Dresser deal brought liabilities for asbestos, which contributed to three straight years of losses at Halliburton. Lesar negotiated a $4.8 billion asbestos settlement in 2004 and shedKBR, starting with a 2006 share sale that made the engineering and construction unit a separate public company.
To contact the reporter on this story:Edward Klumpin Houston ateklump@bloomberg.net.