Baker Hughes has confirmed that Halliburton is in talks with them about a potential acquisition. If the deal goes through then these two oil field services giants would merge and form one of the largest energy companies in the world.
There is no clear price that Halliburton will offer to acquire Baker Hughes, however, one indicator is the market value of the company, which is in the region of $25 billion.
When markets closed Baker Hughes posted a news release that confirmed the company is in preliminary discussions with Halliburton about a deal.
“These discussions may or may not lead to any transaction,” it said. “Baker Hughes does not intend to comment further on market speculation or disclose any developments unless and until it otherwise deems further disclosure is appropriate or required.”
The two companies have been affected by the significant drop in oil prices, which has been caused by overproduction as demand for oil dropped. Although this is welcome news for consumers and airlines, who can now pay less for fuel, it has caused distress in the energy industry and may force companies like Baker Hughes and Halliburton to cut prices.
Shares of both companies have been on a decline since the oil price slump began in the summer.
Would the combined company have the power to increase prices for its services though? Probably not, particularly as there is growing competition around the world, with service companies quickly emerging in China, India, and South Korea.
However, Baker Hughes and Halliburton have the technological know-how to provide services in certain areas like the Arctic and very deep sea drilling, which only the industry leader Schlumberger can also offer.
A merger would allow the combined company to compete against Schlumberger, which is much larger than Halliburton and Baker Hughes.
Update 1: Talks stall on price
According to a report by Bloomberg people with knowledge of the matter said that talks between Halliburton and Baker Hughes stalled today as the two companies continue to haggle over price and divestiture concerns.