Latest / Bloomberg Intelligence / S&P's Glickman on Halliburton: US Focus Still Poses Risk(Audio)

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S&P's Glickman on Halliburton: US Focus Still Poses Risk(Audio) · Bloomberg Intelligence

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  Speaker 1: And that's a Bloomberg business flash. This is taking stock
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  Speaker 1: with Kathleen Hayes and Grim Box on Bloomberg Radio. Haliburton
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  Speaker 1: Baker Hughes calling off their twenty eight billion dollar merger.
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  Speaker 1: Let's find out why. Stuart Glickman, director and equity research
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  Speaker 1: analysts for SMP Capital i Q joins us now Stewart,
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  Speaker 1: thank you very much for being with us. So what
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  Speaker 1: really turned this off the rails? Was it the regulatory
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  Speaker 1: environment or is it more likely I shouldn't pre judge it.
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  Speaker 1: Is it the price of oil? So it's it's a
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  Speaker 1: couple of reasons. I think from the get go, this
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  Speaker 1: merger was going to come under intense scrutiny from the
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  Speaker 1: Department of Justice because we were talking about prospective merger
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  Speaker 1: involving the number two and number three players in oil services.
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  Speaker 1: So that's that's gonna rate, that's going to get um
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  Speaker 1: some eyebrows raised just on its space. And I think
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  Speaker 1: I think what kind of made it even harder to
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  Speaker 1: get through was the deteriorating situation involving industry economics. It's
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  Speaker 1: you know, at the time that the deal was announced,
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  Speaker 1: this was in the call it November four. Yeah, it
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  Speaker 1: was seventy bucks. Seventy bucks for barrel, No even more
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  Speaker 1: than that, I believe. Yeah, it was above it was
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  Speaker 1: seventy higher exactly it was. It was in the mid
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  Speaker 1: seventies when this deal was announced, and I think it
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  Speaker 1: was intended to be kind of a defensive move against
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  Speaker 1: you know, weakness and crude prices. But I don't think
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  Speaker 1: anybody anticipated that crude was going to drop, um, you know,
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  Speaker 1: down to the thirty dollar range, even though it's recovered
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  Speaker 1: slably since then, and we're looking at around forty five
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  Speaker 1: dollars a barrel. Now, UM, there's just an awful lot
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  Speaker 1: of excess capacity when prices fall that far. But having
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  Speaker 1: said that, wouldn't it make sense to buy these assets
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  Speaker 1: when there's turbulence and the asset values have declined, rather
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  Speaker 1: than waiting for a rebound in oil prices. UM, So
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  Speaker 1: you know that that it's an interesting theory. I think
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  Speaker 1: the problem for a lot of players is that, even
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  Speaker 1: though you know, price stock prices have come down and
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  Speaker 1: so assets can be had for cheaper than the otherwise
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  Speaker 1: would be UM on a forward value ouation basis, a
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  Speaker 1: lot of stocks still don't look cheap. UM you have
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  Speaker 1: you have the entire industry really trading above historical multiples.
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  Speaker 1: That's true for Haliber, and it's true for Baker Hughes Um,
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  Speaker 1: and it's even true for some of the industry behame
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  Speaker 1: this like Lake lamberget Now, Baker Hughes is what going
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  Speaker 1: to get a three and a half billion dollar breakup fee?
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  Speaker 1: That's right, So they're gonna get exactly they're gonna get
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  Speaker 1: three and a half billion dollars and they've they've already
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  Speaker 1: outlined some of what they plan to do. Uh, they're
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  Speaker 1: going to buy back their own shares to the tune
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  Speaker 1: of about one point five billion, which I calculate that
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  Speaker 1: makes up maybe seven percent of their shared outstanding. Uh,
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  Speaker 1: they're gonna reduce their debt by about a billion UM.
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  Speaker 1: They already have a relatively low net at the capital ratio,
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  Speaker 1: so I think it kind of bolsters their balance sheet
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  Speaker 1: a little bit in the near term while they fight
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  Speaker 1: through this this this fundamental weakness, like everyone is um.
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  Speaker 1: But then they also have to do other things beyond that.
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  Speaker 1: They have to undertake another round of cost cuts because
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  Speaker 1: all this merger was pending, both Baker Hughes and Haliburt
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  Speaker 1: and really sidestep a lot of cost cuts because you're
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  Speaker 1: just not sure exactly where you're gonna cut and how
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  Speaker 1: until it gets completed. And I think with this off
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  Speaker 1: the table, you're gonna you're gonna see a lot more
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  Speaker 1: of that. Stock of Baker Hughes is down two and
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  Speaker 1: a half percent today. Is Baker Hughes is stock you
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  Speaker 1: want to buy? UM? I have a whole opinion on
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  Speaker 1: the stock. I think, you know, as as a defensive play, UM,
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  Speaker 1: it has some things going for it, like the fact
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  Speaker 1: that it's net debt to capital ratio is relatively low,
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  Speaker 1: so near term they can probably UM tread water along
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  Speaker 1: with you know, others in the industry. I think the
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  Speaker 1: challenges that they have that that UM make it less
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  Speaker 1: compelling and not a buy opinion in my In my
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  Speaker 1: view is, uh, you know, they have they have organizational challenges.
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  Speaker 1: They have to decide which products and services they would
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  Speaker 1: like to be focused on and which ones they don't.
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  Speaker 1: They right now, they sort of are trying to be
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  Speaker 1: all things to all people UM for the most part,
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  Speaker 1: and I think they're planning on being a little more
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  Speaker 1: streamlined and a little more focused than they are at
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  Speaker 1: the moment. How about Haliburton shares a Haliburton though they're
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  Speaker 1: higher today, what is going on there because the deal
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  Speaker 1: is off there? Up two and a half. Yeah, the
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  Speaker 1: market didn't like the deal for the most part since
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  Speaker 1: it since it began. I think they're trading up as
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  Speaker 1: a UM buyers looking like thinking that they kind of
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  Speaker 1: sidestep the landline. UM. But I'm I'm not I'm not
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  Speaker 1: buying this rally. I'm not in favor of Haliburton at
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  Speaker 1: the moment. I have a cell opinion on how I
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  Speaker 1: think that the challenges that present in North America are
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  Speaker 1: going to continue through and UM, that's fair. That's their cornerstone,
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  Speaker 1: that's that's really the heart of their franchises North America.
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  Speaker 1: The one name within oil services that I still like
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  Speaker 1: is Schlamberge, and that's because they're more internationally focused. Tell
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  Speaker 1: us about Slumberge because they seem to have gone the
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  Speaker 1: cost cutting route a lot faster than many of their competitors. Yeah,
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  Speaker 1: I mean Haliburton and slumber have both done cost cuts
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  Speaker 1: to some degree, but I think Slumberja was a little
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  Speaker 1: bit more UM extensive with that, Um, they haven't had
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  Speaker 1: the distraction of the pending merger to deal with. They
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  Speaker 1: are much more internationally focused, and so the upstream, the
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  Speaker 1: upstream players that are cutting spending, they're doing more of
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  Speaker 1: that cutting in North America than they are international. Thank
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  Speaker 1: you very much. Stuart Glickman is director and equity research
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  Speaker 1: analyst for SMP Capital i Q speaking about Haliburton and
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  Speaker 1: Baker Hughes. They're calling off their twenty eight billion dollar merger.
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