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(Reuters) - Halliburton Co said on Monday it will buy Baker Hughes Inc for about $35 billion in cash and stock, creating an oilfield services behemoth to take on market leader Schlumberger NV as customers curb spending on falling oil prices.
Halliburton expressed confidence that the tie up of the No. 2 and No. 3 players in the services industry would clear regulatory hurdles, saying it was prepared to shed assets to mollify antitrust concerns that could arise in Asia, Europe and the Americas.
The deal, the second biggest in the U.S. energy sector this year, could create a company with more revenue than Schlumberger. (link.reuters.com/kav43w)
With oil prices down by a third since June, demand for drilling services has slipped and stock prices across the energy sector have suffered. That has stoked chatter among executives and bankers about acquisition opportunities companies could take advantage of to weather the downturn.
Halliburton Chief Executive Dave Lesar said the combined entity would be more resilient and able to offer a wider suite of products globally.
"Stronger in any market condition is better," he told Reuters. "We are in a cyclical business.”
Halliburton said it was ready to divest businesses that generate revenue of $7.5 billion to satisfy regulators and would pay Baker Hughes $3.5 billion if the deal was not cleared.
"At the end of the day, we wouldn't have done this deal if we didn't believe it was achievable from a regulatory standpoint," Lesar said on a conference call.
Baker Hughes shares were trading well below the offer, suggesting that investors were not so sure of regulatory approvals.
But Kurt Hallead, oilfield services analyst at RBC Capital Markets, said the risk of the deal failing was low.
"I think the assessment on divestitures matches up pretty closely with the work we've done. I don't anticipate there being any roadblocks," he said.
The transaction would unite the two companies based in Houston and create an entity dominant in U.S. onshore services such as hydraulic fracturing and horizontal drilling.
While there are at least seven major services where there is an overlap between the two companies, the deal would fill gaps in two product lines in Halliburton's portfolio – product chemicals and pumps that boost output from wells.
Baker Hughes shares rose nearly 11 percent to $66.44 each on Monday, well short of Halliburton's offer of $80.69, based on Friday's close.
After a steep run up last week, Halliburton shares were down 8 percent at $50.60. Schlumberger was up 0.6 percent at $95.85.
Talks between the two companies started over a month ago and came to a head on Friday when Halliburton threatened to replace Baker Hughes's board after its initial offer was rejected.
Baker Hughes shareholders will get 1.12 Halliburton shares plus $19 in cash for every share held, and own 36 percent of the combined company.
Baker Hughes will get three seats on the combined company's 15-member board.
The combined company's 2013 revenue was $51.8 billion on a pro-forma basis, more than Schlumberger's $45.3 billion.
But Schlumberger's market capitalization of $122.6 billion is twice as large as the united company.
Credit Suisse and BofA Merrill Lynch advised Halliburton and Goldman, Sachs & Co advised Baker Hughes.
Additional reporting by Mike Stone in New York, Diane Bartz in Washington; Anna Driver in Houston and Kanika Sikka in Bangalore; Writing by Terry Wade; Editing by Savio D'Souza and Marguerita Choy