Big Dog, here are some mergers that are being speculated about, what do you think?
BTW, did you get your regular 5% of the value of the deal commission for your work on the HAL + DI merger?
Top Stories: With Big Oil Services
Merger, Baker Hughes or Western Atlas
May Be Next
By Mavis Scanlon
Staff Reporter
2/26/98 8:41 PM ET
The $7.7 billion merger of Halliburton (HAL:NYSE) and
Dresser Industries (DI:NYSE), announced early Thursday,
has sparked speculation about which firms might be next to
join forces in the face of low oil prices.
It has also jumpstarted a flurry of buying in the beleaguered
oil service sector, while presenting a challenge to
Schlumberger (SLB:NYSE), long considered the bellwether
company in the industry.
The merger of the two top-tier oil service firms, an idea
generated by their CEOs on a quail-hunting trip in Texas,
surprised investors. Indeed, just a few months ago
Halliburton, Baker Hughes (BHI:NYSE), and Dresser were
said to be competing for smaller Western Atlas
(WAI:Nasdaq), parent company of seismic contracting gem
Western Geophysical.
The marriage of the oil service sector behemoths
underscores how dramatically the sector has changed. Last
year's skyrocketing stock performances have melted away
with the sharp drop in crude prices. With no price relief in
sight, investors and analysts anticipate more strategic
mergers.
It's a prospect with an eerie familiarity. The hundred or so
companies lumped in the oilfield services and equipment
sector today survived a decade of depression stretching from
the mid-80s to 1995.
The survivors are the strongest and best companies of that
era. Now, after just three months of low commodity prices,
many in the industry feel the next wave of consolidation has
arrived, despite insistence from Halliburton and Dresser
executives that their combination was strategic, as opposed
to a reaction to difficult market conditions. Dresser's stock
leapt 6 1/16, or 15.7%, to 44 10/16, on news of the deal, and
Halliburton gained 2 3/4, or 6.3%, to 46 10/16.
Investors will focus on Baker Hughes in coming days. The
view among investors is that if Baker does not strike first, it
may be the next target, "ultimately of Schlumberger," says
Erik Gustafson, manager of the Stein Roe Growth Stock
fund and a big BHI shareholder. BHI's stock also got a huge
boost on the news, closing up 3 13/16, or 10.4%, at 40
10/16.
Others think Baker will act first. "This is going to put a lot of
pressure on Baker to combine with another oil field service
entity that would give it more integration," says Richard
Hunter at Lighthouse Capital in Houston.
Western Atlas again tops the list of Baker Hughes
possibilities. WAI closed up 3 10/16, or 5%, at 75 10/16, a
price many consider lofty. With a forward P/E ratio of 30.4,
its valuation could be downright unattractive in an industry in
which multiples have been knocked back closer to the 10-15
range in recent months.
Another possible target would be Veritas DGC (VTS:NYSE),
a $566 million company providing seismic data acquisition
and processing services in both marine and onshore
environments.
Indeed, the entire second tier of seismic contractors -- the
small- or mid-cap companies like Dawson Geophysical
(DWSN:Nasdaq), Venture Seismic (VSEIF:Nasdaq) and
3-D Geophysical (TDGO:Nasdaq) -- is ripe for continued
merger activity. (Click here for a recent $10 Store feature on
TDGO.)
"Seismic contractors as a whole are a definite target," says
Jim Wicklund at Dain Rauscher in Houston.
As for Schlumberger, while Halliburton-Dresser has
leapfrogged over the firm to take the No. 1 revenue position
in the industry, the French oil services giant still retains its
No. 1 position in market capitalization. And it has two
enormously lucrative divisions -- a drilling unit and a seismic
unit -- that Halliburton-Dresser lacks. The newly formed
company has a powerhouse of an engineering and
construction division, however, which will account for about
30% of the company's revenue.
* * * * *
On the heels of the Halliburton-Dresser merger, Coflexip
(CXIPY:Nasdaq) and Cal Dive (CDIS:Nasdaq) announced a
joint venture to pursue projects in the deepwater Gulf of
Mexico. Quantum Offshore Contractors, as the venture
will be named, is the consummation of an alliance between
the two firms announced in April 1997. The deal is likely to
boost earnings for both companies for some time to come,
as oil companies begin production out in the deep waters of
the Gulf. Shares of CXIPY rose 3 7/8, or 8.2%, to close at
51 3/8, while shares of CDIS dropped slightly, to close at 25
3/4, down 1/8. |
