Baker Hughes is a very interesting situation. It’s currently in the middle of a merger process with Halliburton. The deal is under heavy scrutiny by the antitrust authorities, both in the United States and in Europe. And as a result, the discount to the deal value has opened up to over 20%, expressing a high degree of skepticism on whether that deal will actually get done.
We think Halliburton stock is very cheap, and the company is well-managed. We still would lean to the idea that the deal will get final approval, and if that happens, you get a total value of more than $50 at current market prices. With Baker Hughes trading at $40, you get the immediate 25% appreciation of the discount closing, but we also think that you would get — you’re getting cheap Halliburton stock, so we think that the total value is $65 to $70 for relatively fantastic return.
In the event that the deal does not close, in particular because of regulatory issues, the breakup fee that Halliburton is required to pay Baker Hughes is $3.5 billion, which is 20% of Baker Hughes’ current market cap. So at the current price, we think Baker Hughes is undervalued and worth probably 30% more than its current price, and with the breakup, you would get an additional 20%. On this basis, Baker would be worth as much as $60 per share, so that’s a roughly 50% upside from here as well.
And we think Baker is well-positioned for the current downturn. It’s got the best balance sheet out there. And so if we ended up with Baker, we’d still be very happy. We think, at the current price, it’s kind of a win-win situation.