The oil industry was only just coming to terms with Halliburton's offer for Baker Hughes when Technip revealed it had made an offer, albeit rebuffed, for CGG yesterday (20 November).
Colin Welsh, CEO at energy corporate advisory firm Simmons & Company, gives his thoughts on the oilfield deal of the century, the Technip proposal and what the market might make of it all:
The Halliburton Baker Hughes deal ticks all the boxes of a transaction that can be a two plus two making six.
It gives Halliburton greater scale. Its market capitalization is currently roughly one-third of Schlumberger’s, so it will move it much closer to its rival. It also gives Halliburton a significantly broader product range encompassing Baker’s leading position in complimentary products and services.
Thirdly, the estimated $2 billion in cost savings will significantly enhance the profitability of the combined entity.
This type of takeover is usually done at a premium of circa 25 - 35% and this one is smack in the middle of that range.
Timing of the deal is smart too as crude prices have slipped circa 30% this year, as have the parties’ share prices compared to their year to date highs. Consequently, in absolute terms, the 30% premium is considerably lower than it would have been had the deal been agreed earlier in the year.
The market will also be watching with interest for what happens next in the large oilfield services companies’ space and for who will move up to be the new third player in the market.
The regulator is going to have a field-day with a deal of this scale and several parts of the business will have to be divested to meet competition requirements. Industry buyers and the big private equity firms will see this as a big opportunity.
Another positive is that this is a real signal to the market from Halliburton that it sees the current lower oil price as temporary and not an issue that will be a problem for too long.
On the face of it, the Technip - CGG prospect was perhaps a less compelling fit, however French companies do have track records of favoring deals with their countrymen.
The real interest here for Technip must be the equipment manufacturing and reservoir management parts of CGG (rather than the seismic acquisition part), which has the potential to extend its business from being a focussed subsea construction group into a group with much greater breadth.
Read more: CGG rebuffs Technip offer
Subscribe
