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Halliburton & Baker Hughes

How 2014's oil slump contributes to the Halliburton and Baker Hughes energy deal and what it means for the E/CTRM industry.

This may be the largest energy deal in a decade. The CEO of Halliburton said "The transaction will combine the companies' product and service capabilities to deliver an unsurpassed depth and breadth of solutions to our customers, ...and creating jobs and serving customers around the globe."

Really? Both of these companies have been affected by the oil slump this year. Analysts are doubtful that this combined company will have power to raise prices for drilling, cementing and fracturing -- especially with new services companies growing in China, India and South Korea.

Perhaps they may be able to affect pricing in areas that are the hardest to service, like the Arctic or the deepest offshore oil areas. But the industry leader there is Schlumberger, which is much bigger than either company.

According to strategy guru Porter, you want to be the lowest cost provider or the differentiated market leader, neither of which this merger forms.

Why then would this make sense?

My money thinks that it is purely a cost cutting play -- they see the $80 oil slump continuing and business becoming more and more difficult. In fact, Halliburton has come out and said it will divest businesses worth up to $7.5B. Further, it may be worse than we think, since it has also committed to pay a $3.5B fee if the transaction terminates if they don't get the anti-trust approvals.

So, "creating jobs"? No, I don't think so.


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