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Halliburton May Divest Some Baker Hughes Assets for Merger

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Oilfield service behemoth Halliburton CompanyHAL will likely sell some assets of Baker Hughes BHI , going by Bloomberg. The program is to satisfy the antitrust regulators for the planned $35 billion merger between Halliburton and Baker Hughes .

The to-be divested properties include offshore drilling and completions fluids assets of Baker Hughes. The list also comprises a bulk of completion systems of Baker Hughes. In Nov 2014, Halliburton decided to acquire Baker Hughes in a cash and stock transaction. The merger was about to be completed by 2015 but later on the companies agreed to defer the date to no later than April 30, 2016. The delay occurred because Halliburton and Baker Hughes tried to solve problems related to antitrust approvals from within and outside the U.S.

Almost all oilfield services players including Halliburton are being affected by the free fall in crude prices for more than 1.5 years. This is because their business is positively correlated with the price of oil. In fact, the West Texas Intermediate (WTI) crude, which closed at $27.45 per barrel yesterday, has nosedived over 72% since mid 2014, when oil price was perched above $100 per barrel.

Hence, after the completion of the Halliburton-Baker Hughes merger, the combined company is expected to be in a better position to dominate the oilfield services industry and weather the plummeting crude prices.

Houston, TX-based Halliburton offers a variety of equipment, maintenance, and engineering and construction services to the energy, industrial and government sectors. But since oil price is not expected to recover this year, we don't see Halliburton earning significantly in the coming months.

As a result, Halliburton carries a Zacks Rank #5 (Strong Sell), implying that the stock will significantly underperform the broader U.S. equity market over the next one to three months.

Meanwhile, a couple of better-placed players in the energy sector are Tesoro Corporation TSO and Valero Energy Corporation VLO , carrying a Zacks Rank #2 (Buy).

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VALERO ENERGY (VLO): Free Stock Analysis Report

TESORO CORP (TSO): Free Stock Analysis Report

BAKER-HUGHES (BHI): Free Stock Analysis Report

HALLIBURTON CO (HAL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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