By Ryan Dezember And Alison Sider
Halliburton Co. sweetened its final offer only slightly from its
first bid for rival Baker Hughes Inc., but the bump was magnified
by a drop in Baker Hughes's share price during merger talks this
autumn between the world's second- and third-largest oil-field
service companies.
Halliburton on Monday disclosed details of their sometimes-tense
courtship, which culminated in an agreement last month for
Halliburton to acquire its smaller rival for cash and stock that
valued Baker Hughes at around $35 billion.
The document reveals Halliburton's initial offer of $19 and 1.05
of its own shares for each Baker Hughes share. That put a price tag
of about $32.9 billion, or about $76 a share, on Baker Hughes,
based on the closing price of Halliburton's stock on Oct. 10, the
last trading day before the Oct. 13 bid.
In the week that followed Halliburton's initial overture, both
companies reported third-quarter earnings. Halliburton beat
expectations. Baker Hughes fell short. With Halliburton's shares
moving up, and Baker Hughes's down, Halliburton's offer effectively
increased.
Halliburton emphasized the shift in negotiations. "Despite Baker
Hughes' earnings that surprised investors, we reaffirmed our
proposal, and the premium has now increased to 45%," Halliburton
Chief Executive David Lesar wrote to his counterpart, Martin
Craighead, on Nov. 3.
Meanwhile, Halliburton went ahead with plans to nominate a slate
of directors to steer its rival into a merger. The day after
Halliburton made its bid, for example, the company bought 100 Baker
Hughes shares so that it could nominate directors for Baker Hughes'
April shareholder meeting, the filing said.
Halliburton and Baker Hughes compete for oil-field services
business around the world, and the two companies dominate the
market for some of their offerings. Baker Hughes's board flagged
antitrust risk as an issue from the outset.
Baker Hughes's top legal officer proposed a $5 billion breakup
fee if the deal was blocked by regulators and $3 billion if
Halliburton's shareholders voted down the deal. Baker Hughes also
wanted Halliburton to commit to a "hell or high water" covenant--an
agreement that Halliburton take any action necessary to get the
deal past antitrust authorities.
Halliburton countered with a $1.5 billion breakup fee and a
commitment to sell businesses that generated sales of several
billion dollars if regulators required that.
The companies eventually met in the middle. Halliburton agreed
to pay Baker Hughes $3.5 billion if regulators quashed the deal,
and each agreed to smaller breakup fees if their shareholders
vetoed the combination.
But they still hadn't agreed on price. By Friday, Nov. 14,
Halliburton delivered to Baker a slate of board candidates. Baker
Hughes fired back with an after-hours news release chastising
Halliburton's tactics.
Halliburton persisted, with Mr. Lesar inviting Mr. Craighead to
meet.
The next morning the Baker Hughes board met, and Mr. Craighead
then reached out to Mr. Lesar. The CEOs met, with one lieutenant
each at their sides. Mr. Lesar presented the final offer: $19 in
cash and 1.12 of its own shares per Baker share, a roughly $2
billion bump that gave Baker Hughes shareholders a bigger stake in
the combined company. The offer premium expanded from around 34%
initially to more than 50% based on share prices a few days before,
when The Wall Street Journal broke news of the talks.
It was enough for Baker Hughes, and the two sides spent the rest
of the weekend working out the details.
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