Merger of Halliburton / Baker-Hughes

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Report: Merger of Halliburton / Baker-Hughes
Introduction
Recently, there has a slump in oil prices, with prices now below $ 80 per barrel, and there have been questions on whether oil companies will maintain their profitability if the prices fall below $ 70. The fall in prices has been associated with a supply glut in the American market, but relieance on fracking and oil shale wells may not be sustainable as they are more expensive to operate than conventional wells. It is projected that there is a likelihood that there will be energy consolidation, with bigger companies buying smaller ones and diversifying there areas of operations in oil and gas industry. This report focuses on the merger of Halliburton and Baker-Hughes, and highlights on ethical responsibilities towards investors.
Summary of article
Reports that Halliburton (HAL) would finally take over Baker-Hughes (BHI), were met with surprise, despite indications that energy consolidation was gaining more attention in the oil and gas industry. In the article, Phillips points out, that the deal was completed earlier than expected, and more probably because of fears about the impending fall in oil prices. Earlier reports showed that Halliburton even consider a hostile take over and possibly replace the entire board of BHI. For the companies there was concern that a further fall in oil prices would make oil drilling untenable to the extent that each company would lose out if they competed in a market situation where low oil process prevailed. In any case, the supposed merger would make the company the largest oil drilling company.
Company situation
Uncertainty in the oil sector has made investors anxious about future prospects of the industry. However, the merger of HAL, would be beneficial in the long-term as the company is likely to use the economies of scale. Nonetheless, there is a need to closely monitor oil prices as they affect the company’s growth prospects. As an investor, the company’s dividend policy seems attractive even with a fall in prices. The company mainly provides equipment and services to oil drilling companies. Hence, the merger will be beneficial, but the prospects of oil drilling companies will have a direct impact on the company’s operations in 2015.
Since all indications that the company will grow over time, the potential for improved American energy production also has an impact on the company. A look at the company’s stock before the oil slump showed that a steady growth in revenue showed that the investors were optimistic about the company. Nonetheless, since there have been a slump in oil prices many investor...