Last month,Halliburton CFO Mark McCollum noted that the oil-field services giantwas buying Baker Hughes for a very specific reason. It saw the deal as being the key in closing the gap with rivalSchlumberger. However, the gap wasn't so much in size as it was in valuation premium, as Schlumberger has always traded at a premium to Halliburton.
Schlumberger is equally excited for this deal to close, because it sees a big opportunity to grow market share now that it must battleone large rival instead of two.
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Opportunity with a capital "O"Schlumberger CEO Paal Kibsgaard addressed the merger in comments to analysts during the company's fourth-quarter conference call:
Kibsgaard said his company's rivals are doing the right thing by merging, given the importance of scalefor driving performancein the oil-field services industry. However, he added that the move is an opportunity for Schlumberger rather than a threat, asHalliburton could struggle for a while as it integrates Baker Hughes.
Breaking through the glass ceilingKibsgaard said the reduction of the number of major oil-field service companies could eliminate what he called the "glass ceiling" to global market share.
Specifically, Schlumberger stands to take some of the market share that had been split between Halliburton and Baker Hughes, according to Kibsgaard. For example, an analyst on the call noted that Halliburton and Baker Hughes currently control 70% of the Brazilian market; however, after the deal closes, Schlumberger could break through its 30% market share ceiling and possibly take up to 50% of the market.
Investor takeawaySchlumberger isn't worried that its two largest rivals are combining. Instead, it sees consolidation in the oil-field services industry as an opportunity to take market share in some of its international markets.
The article Why Schlumberger Limited Cant Wait for Halliburton Company to Close its Deal for Baker Hughes Incorporated originally appeared on Fool.com.
Matt DiLallo has no position in any stocks mentioned, but thinks Halliburton's deal for Baker Hughes is a great move. The Motley Fool recommends Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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