Halliburton CEO hits the road to sell megadeal

Halliburton CEO Dave Lesar hopped on a plane from Houston to New York on Monday, rang the bell at the New York Stock Exchange on Tuesday, and on Wednesday will have 10 meetings with shareholders to sell the oil field services industry's biggest-ever acquisition.

So far, investors have served up more punishment than praise for the company's purchase of Baker Hughes, erasing more than $5 billion from its stock-market value after Monday's announcement.

But Lesar is working to sell the $35 billion deal to well-heeled Wall Street investors in New York, and he says the financial community is starting to come around on two divisive issues: scrutiny from antitrust authorities and the likelihood that those regulators will force the company to dispose of billions in revenue-generating assets.

The stock market's reaction so far to the deal represents a lack of understanding about it, Lesar told the Houston Chronicle in between meetings with shareholders in New York.

"This is a complex deal," Lesar said. "This is not a transaction we're doing for today or next quarter or next year. This is a company we're putting together for the next 10 to 20 years."

Halliburton's proposed deal to buy Baker Hughes will pair up two of the biggest oil field service companies in the world, both based in Houston and with a combined workforce in the area of 15,000. Only Schlumberger is bigger worldwide.

For the deal to go through, Halliburton estimates it may have to unload assets that produce up to $7.5 billion in annual revenue. For perspective, that's a bit more than the 2013 sales of Houston subsea equipment maker FMC Technologies - itself a major oil field services company.

"Whatever they spin off is going to be a very significant player," said Bruce Ross, managing partner at OFS Energy Fund, adding his private equity firm probably will contact Halliburton about assets for sale if the deal goes through.

Falling shares

Halliburton shares fell 69 cents to $48.54 on Tuesday, after falling $5.85 on Monday. Baker Hughes shares dropped $1.68 to $63.55, a day after its stock price surged $5.34.

Investors have sent Halliburton's stock price down on worries that it is underestimating the pushback that will come from federal trust-busters, who will take a close look at the coupling of two of the biggest players in several oil tool markets, said Rob Desai, an analyst with Edward Jones. They also think Halliburton is paying too much for its smaller rival, he said.

"It's one of the highest premiums we've seen in a while," Desai said of the price tag, which was 50 percent higher than the market value of Baker Hughes last week, before news broke of the merger talks. Desai said investors also are worried about the $3.5 billion fee Halliburton will pay Baker Hughes if the deal fails amid regulatory scrutiny.

They'll probably have to divest in well-cementing and deep-water completions tools, the equipment used to secure wells after drilling is done, said Robert MacKenzie, an analyst at Iberia Capital Partners.

But Lesar said the $7.5 billion-revenue estimate is higher than what Halliburton actually expects to sell off. In the interview, Lesar wouldn't speculate on what businesses or how much of them antitrust regulators will require the company to sell, but he said it probably will be with "less breakup than people think."

In a statement announcing the deal Monday, Lesar said it will create $2 billion in "cost synergies," and analysts predict that will mean at least some job cuts, which are common when large companies combine overlapping corporate functions.

But Lesar said in the interview Tuesday that even if Halliburton has to divest billions in revenue-generating assets, most of the workers who are tied to its businesses will keep their jobs, one way or the other - even if they work under new owners.

What to divest

He said his email was flooded Monday with messages from private equity firms and public companies angling to buy any pieces that might be chipped off the Halliburton-Baker Hughes combo. He said the company won't know what it will need to divest until the antitrust process begins.

There's going to be plenty of interest in Halliburton's top-of-the-line product units, especially among its direct competitors, said George McCormick, managing partner of TPH Partners, the private equity arm of investment banking firm Tudor, Pickering, Holt & Co. "There's a great deal of capital looking to be invested in the space," McCormick said. "You don't get the chance to acquire solid legacy product lines every day."

Halliburton, McCormick said, will make more money on its assets if it sells businesses piecemeal to companies that sell the same products, rather than bundled in a mix of businesses. In the end, he added, most of those probably will go to industry players, rather than private equity firms. "In any case, half of that $7.5 billion would be a meaningful number," McCormick said. "You have a long list of players that would be able to do a $1 billion acquisition."