HOUSTON – Correspondence between the heads of two oil field service giants, unleashed Friday in a bundle of public disclosures, has provided a window into the haggling that could bring together two fierce rivals in what could be the second-biggest energy deal of this year.
Now they still appear adversarial.
“Your demand that we accept your offer in the next four hours, and threat to conduct a proxy contest to try to control both sides of this negotiation are entirely inappropriate,” Baker Hughes CEO Martin Craighead wrote to the head of Halliburton this week.
News of Halliburton’s potential acquisition of Baker Hughes came earlier this week, a few days before Baker Hughes announced late Friday that Halliburton is aiming to replace its board with its own nominees in what could be a months-long hostile takeover process. The correspondence was disclosed in that announcement.
The most consistent theme in Craighead’s messages to Halliburton CEO Dave Lesar is that Halliburton’s Oct. 13 offer price made for the Houston oil field equipment company, originally built by billionaire tycoon Howard Hughes Jr., is too low.
Craighead’s most recent email to Lesar mentions the companies making progress on antitrust issues. But in an earlier letter, Craighead said a plan proposed by Halliburton didn’t include compensation for Baker Hughes if the deal should fall through in the face of significant antitrust scrutiny.
Still, the letters to Lesar may offer between-the-lines hints to Baker Hughes’ intentions.
“They’re playing a well-worn game,” said Steven Davidoff Solomon, a law professor at the University of California at Berkeley, adding the letters are very carefully scripted to begin building a case that Halliburton’s offer devalues the company.
Even further, the publicly disclosed correspondence could be part of Baker Hughes’ outreach to other firms that may be interested in buying the Houston company – a tactic to raise Halliburton’s price or to get a better offer from another company.
Though the letters say Halliburton hasn’t increased its offer in more than a month, it’s unlikely that the Houston company isn’t prepared to up the price in initial negotiations. But Craighead’s letter sends a subtle message that whatever increase in the offer price will now need to be higher, because it can always shop for better deals, said Praveen Kumar, a finance professor at the University of Houston.
“What the CEO is saying is, don’t count on getting the deal by making just one improvement to the price,” Kumar said. “The message is, you may have to go higher than that.”
It’s unclear exactly where the deal stands now, but with Halliburton engaging in hostile tactics, it could take several months before the contentions are resolved. Shareholders are set to vote on director nominees in April 2015.
“It’s a long way off, and a lot can happen until then,” Solomon said.
But in the past few years, energy companies have been asking for – and getting – high, 30-40 percent premiums on their market values. Baker Hughes was worth $22 billion before news of the deal talks emerged, meaning it could be holding out for a $28 billion to a $30 billion offer price.
“There have been a lot of companies trying to get into the shale revolution,” Kumar said. “For all we know, P&G will come asking after Baker Hughes.”