Halliburton Goes Hostile With Baker Hughes Offer, Intends To Replace Board

(RTTNews) - Oilfield services provider Halliburton Co. (HAL) has over the weekend gone hostile with its acquisition offer for smaller peer Baker Hughes, Inc. (BHI), which had confirmed the preliminary deal talks on Thursday.

Baker Hughes confirmed on Friday that it is in receipt of notice from Halliburton on the intention to nominate a full slate of directors to replace the entire board of Baker Hughes at its April 2015 annual meeting.

"Baker Hughes is disappointed that Halliburton has chosen to seek to replace the entire Baker Hughes board rather than continue the private discussions between the parties," Baker Hughes Chairman and CEO Martin Craighead said in a statement.

Baker Hughes said it received an unsolicited proposal from Halliburton without prior notice on Thursday.

The Baker Hughes board, in consultation with its financial and legal advisors, unanimously determined that Halliburton's initial offer is not at an adequate value level and not in the best interests of its stockholders. The board also advised the stockholders to not take any action at this time.

Halliburton then immediately sent notice on its intention to replace the board following its failed attempt to pressurize the Baker Hughes board to accept the acquisition offer on Halliburton's terms. Halliburton also refused to improve its first and only value proposal, which it claims would produce $2 billion in synergies after any required divestitures.

"Baker Hughes believes that Halliburton's various attempts at coercive tactics, instead of being willing to negotiate a reasonable value for the Company's stock and despite having stated twice that they have room to increase the value of their offer, are attempts to control both sides of a negotiation and are entirely inappropriate," Craighead added.

Halliburton had demanded the Baker Hughes board to accept its offer in the next four hours, and threatened to fight for control of the Baker Hughes board. It was hurrying a decision due to the deadline of November 14 for nominations to Baker Hughes' board for election next year.

Meanwhile, Baker Hughes said it is evaluating the director nomination notice for compliance with its by-laws.

Goldman, Sachs & Co. is serving as financial advisor to the Company and Davis Polk & Wardwell LLP is serving as legal counsel to Baker Hughes.

The deal talks between the two Huston-based companies come at a time when oil-field service companies are grappling with falling crude oil prices, which could threaten their services as clients could cut back on operations due to less profitable oil-and-gas production.

However, the proposed deal could hit regulatory road blocks as the combination of two of the world's three largest oil field service companies would dominate several products in the global oil-field services market.

Halliburton is the world's second-largest oil services company with a current market capitalization of $46.68 billion, while Baker Hughes, the third-largest, has a market capitalization of $25.91 billion following the surge related to the news.

The two companies will also together have presence in more than 80 countries. To get regulatory approval, Halliburton would reportedly have to sell a number of assets across a range of business lines.

However, the combined entity will still be much smaller than the world's largest oilfield services company Schlumberger Ltd. (SLB), which has a market cap of $122 billion.

HAL closed Friday's regular trading session at $55.08, up $1.29 or 2.40% on a volume of 25.50 million shares, and BHI closed at $59.89, up $1.14 or 1.94% on a volume of 43.90 million shares.