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Speculation has been intensifying for several weeks, if not longer, that the combined Halliburton/Baker Hughes, which would have married the world's second- and third-largest oil services providers behind Schlumberger Limited. (SLB), was bound to face anti-competitive concerns.
Although the companies had pledged to unload assets to make the deal work, efforts to get to the altar were dropped over the weekend. The deal, initially worth $34.6 billion when announced in late 2014, was recently valued at $28 billion. Halliburton must pay Baker Hughes a $3.5 billion breakup fee.
Oil In The ETF Arena
Several exchange-traded funds are dedicated oil services plays, but the Market Vectors Oil Services ETF (OIH) is viewed by many traders as the benchmark ETF for this corner of the energy sector. OIH is a $1 billion ETF that devotes over 24 percent of its combined weight to Halliburton and Baker Hughes as of April 29. The ETF, which allocates 21.2 percent to Schlumberger, holds 26 stocks.
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Slumping oil prices since the time Halliburton's offer for Baker Hughes drove the value of the deal downward.
The collapse of Halliburton's acquisition of Baker Hughes comes as both companies struggle to cope with the impact that lower energy prices are having on their clients, according to Reuters.
Beyond OIH's significant weights to Halliburton and Baker Hughes, the ETF is one to watch in the coming days because the collapse of one deal does not mean mergers and acquisitions in the oil services space are completely dead. At the very least, the rumor mill could pick up speed in the wake of the Halliburton/Baker Hughes breakup.
Possible Action In The Oil Space
For example, Baker Hughes could remain a viable target. Additionally, National-Oilwell Varco, Inc. (NOV), which accounts for more than 5 percent of OIH's weight and is the ETF's third-largest holding behind Schlumberger and Halliburton, has also frequently been mentioned as a takeover target. Dow component General Electric Company (GE) oil services unit could be a buyer of either Baker Hughes or National-Oilwell Varco.
Weatherford International Plc (WFT), OIH's sixth-largest holding at a weight of 4.6 percent, has also frequently been mentioned as a takeover target in the past.
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