Notwithstanding the regulatory hurdles still to overcome, it’s already time to pick the winners and losers of this $35billion marriage. The certain winners are my learned friends, the lawyers, not least amongst them Baker Botts. Congratulations to them. However, first off for the strategy session should be Schlumberger.
Whilst its turnover will potentially be eclipsed (reportedly $51.8billion v $45.3billion) size isn’t everything (as my friends at Baker Botts would tell you). Whilst it might take the shine off a few egos, being the underdog in the current climate isn’t a bad place to be. Turnover is vanity, profit is sanity. Whilst this month’s massive union story will no doubt attract lots of profile during the engagement, the honeymoon may be short. A competitor disappearing may well be good news for the likes of Schlumberger. Two that are absorbed by compliance and ominous internal restructuring looks like an early Christmas present. Schlumberger may even keep its turnover crown, depending on what businesses Halliburton may be forced to sell to satisfy competition regulators (more work for the lawyers).
One nil to Schlumberger? That appears to be how the markets initially viewed it. However the 24 hour share price is not everything. In the medium term the industry is changing. Operators are looking to cut spending commensurate with the lower oil price. Seeking economies of scale is a well worn strategy. Increasing size doesn’t help when it comes to greater focus or being light on your feet, but it can help squeeze some unloved overheads. For “overheads” read “people”. The logic is there is no point in having two teams working to 50% capacity when you could have one team working at 100% capacity. Easier said than done.
In parallel to the frenetic 100 day plan preparation at Halliburton similar excitement is created down the supply chain. Those who work for Baker Hughes but not Halliburton wonder if they will be winning or losing a material customer or alliance partner. Those that supply both are comparing their contract terms to identify the lowest common denominators, termination dates, change of control provisions and differentiating factors. Halliburton/Baker procurement will be demanding the best of both worlds, but you may be able to make them wait (or at least negotiate) for it. Those in the next tier down may take a little longer to understand the implications for the purchase orders that come their way. If you subcontract to a supplier to Baker Hughes but not to a sub-contractor to Halliburton where will you stand? What can you do about it? It may be the Baker Hughes relationships that survive. No Christmas shopping breaks for the business development team this year- time to knock on some familiar doors.
Peter Murray is a partner at Scottish law firm Ledingham Chalmers where he specialises in UK corporate law and international projects.