NEW YORK (TheStreet) - Halliburton's (HAL) $34.6 billion price tag and hefty premium attached to its potential acquisition for smaller oilfield services company Baker Hughes (BHI) may have had investors squirming on Monday, but analysts are fans of the deal.
The deal was driven less by the current low oil prices and more by current conditions in the industry, Halliburton CEO Dave Lesar told CNBC on Tuesday. "As you look at expansion of the unconventionals in the U.S., the growth in the deep water in other parts of world, the national oil companies demanding more from the service companies, I just thought a bigger, stronger integrated company was what was needed to compete in this marketplace," Lesar said on Squawk on the Street.
Rumors of a deal between the two companies heated up last week, with Baker Hughes confirming late Thursday that it was talking to Halliburton. Details of the transaction were officially announced on Monday.
Halliburton shares were trading down 0.43% to $49.02 on Tuesday on volume that was double its average three-month trading volume of 13 million shares. Shares of Baker Hughes traded down 0.67% to $64.79 on volume of about 16 million shares - also more than double its average three-month trading volume. Here's what analysts, who cover Halliburton, said about the deal.
Ole Slorer, Morgan Stanley (Overweight, $60 PT)
"BHI proposed acquisition would be dilutive to HAL in 2016 and accretive from 2017, in our view. We also expect SLB and WFT gain share near term, but nevertheless expect HAL to narrow its valuation discount to SLB on (1) improved ability to handle more complex international tenders and (2) scope to improve BHI's underperforming NAm margins.
The proposed 43% premium above the HAL/BHI ratio for the previous 3-month period represents a steep premium that gives most of the near-term targeted cost synergies to the BHI shareholders, in our view. While HAL may end up divesting less than the $7.5bn in sales highlighted, we believe the proposed transaction would result in long-term value creation regardless as it would have profound industry and efficiency implications."