NEW YORK (TheStreet) -- I was talking to Jim Cramer today about the buyout of Baker Hughes (BHI) by Halliburton (HAL) , potentially making the world's largest oil services company. I believe that the opportunity lies in buying Halliburton shares today.
While Halliburton and Baker Hughes have been rumored to be talking about a merger for years, I believe the current low crude oil price was the deciding factor in the deal finally being struck. There are clearly several pressures on oil services companies when oil prices are low, as exploration and production companies will look to lower capital expenditures and reduce the number of new projects they commit to.
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The prices for the shares of both of these services companies have suffered with the dropping price of the crude barrel, and the timing of this merger seems to suggest that both companies don't believe that oil prices are likely to recover any time soon.
Even so, Halliburton was willing to pay a large premium for Baker Hughes, giving $35 billion in stock and cash to get the deal done. Only tremendous economies of scale could make such a premium worthwhile and BHI stock has soared on the prospect of this merger being approved.
There is still some premium left in Baker Hughes stock, because it is hardly a sure thing that this deal will be approved by the Justice Department. A very good case could be made for competitive advantage with the combination of these two behemoths, but the Justice Department has shown little interest in slowing or halting oil sector consolidation deals, unless they have contained a foreign participant as the acquirer. I believe Justice will look the other way on this deal too.