In a report published Thursday, Morgan Stanley analyst Ole Slorer maintained Overweight ratings on Halliburton Company HAL and Baker Hughes Incorporated BHI. The price target for Halliburton was raised from $60 to $62, while that for Baker Hughes was raised from $86 to $88.
Analyst Ole Slorer commented that there was now “increased conviction” on the acquisition of Baker Hughes by Halliburton. Having met an antitrust expert with “a wealth of antitrust case experience and familiarity with people working on the HAL/BHI deal,” Slorer stated that the deal's risks appeared “well managed” and the deal was “likely to go through.”
In the report Morgan Stanley noted that Halliburton’s HAL's actions had “meaningfully reduced” risk. These include:
- Divestiture of major verticals
- Signing a timing agreement with the DOJ
- Stating that they had 25 interested buyers with good prices
- Reconfirming synergies of $2bn, irrespective of market circumstances
Slorer said that a major concern among investors was whether the DOJ would view bundled services as a separate market, posing a risk to the completion of the acquisition. “Examining historical cases, the “one stop shop” argument has rarely prevented a deal, since users of bundles are often sophisticated buyers that can react to price increases by buying piece meal,” the report explained.
“Therefore, the threat of leaving the bundle is viewed as sufficient to prevent anti-competitive behavior, given that there is a presence of “a la carte” competition, which clearly will be available following HAL's divestitures,” Slorer wrote.
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