Tuesday 14 March 2017

US oilfield services giant Halliburton is reportedly poised to secure a takeover deal for Norway’s Aker Solutions, having earlier failed in its bid to acquire rival Baker Hughes.

Talks are progressing for the sale of the Oslo-listed engineering player in whole or in part, with Halliburton most interested in Aker Solutions’ core subsea business and less keen on the contractor’s field design activities, Norwegian business daily Finansavisen reported, citing a source familiar with the matter.

“A sale of the entire company cannot be ruled out,” the source said.

Goldman Sachs’ New York-based head of its oil services department, Chris Pilot, is understood to have been engaged for the sales process.

While a possible transaction value was not disclosed, ABG Sundal Collier analyst Haakon Amundsen was quoted as saying a realistic price would be around Nkr65 per share.

This would yield a deal worth around Nkr6.2 billion ($721.4 million) for holding company Aker, backed by billionaire industrialist Kjell Inge Rokke, based on the sale at this price of its 34.8% stake in the contractor that was valued at more than Nkr3.9 billion at the end of last year.

Aker Solutions has seen its share price surge more than 31% in recent months on speculation over a possible takeover and the counter increased by a further 14% in early trading on Tuesday to Nkr55.50.

A spokesman for the holding company told the publication: “Aker is an industrial investment company and we talk regularly with companies and investment banks about ideas and opportunities.

“We have a good dialogue with several, but do not wish to confirm or deny who we are talking with or have talked with.”

He added the company would not disclose the identity of parties involved in ongoing negotiations.

An Aker Solutions spokeswoman would not comment on “rumours” in the market surrounding the company.

However, Aker chief executive Oyvind Eriksen stated in the holding company’s recent fourth-quarter report it was interested in participating in industry consolidation.

“Aker’s oil services companies have made good progress in addressing the changing industry dynamics, but there is still more to be done to strengthen the competitiveness through structural cost improvements and new business models," he wrote.

“While Aker continues to develop each company on a standalone basis, we remain open to both new alliances and transactions as long as it has strong industrial logic and is financially accretive to shareholders.”

Amundsen said “the timing could be right” for such a transaction given contractor rivals such as Schlumberger and Cameron, and Baker Hughes and GE have carried out similar merger deals to bolster competitiveness amid a market slump that has hit profit margins.

Halliburton missed out on acquiring Baker Hughes after the proposed deal was kyboshed by anti-trust authorities last year.

However, the US giant could also face a major obstacle to its putative acquisition of Aker Solutions, which would see ownership of the contractor be transferred out of Norway.

This is due to the fact the Norwegian state holds a 30% ownership interest in Aker Kvaerner Holding that in turn holds a 40.6% stake in the contractor, giving the state an indirect stake of 12%.

Holding company Aker’s stake in the contractor is held both through a direct shareholding and a 70% interest in Aker Kvaerner Holding.

Any sale of Aker Solutions would therefore first require official approval and a disposal of the state’s entire ownership interest would need to be ratified by parliament.

It is further reported that a price of more than Nkr70 per share would be required to avoid the state making a loss on any sale.

The state originally paid Nkr4.8 billion for its 30% interest in Aker Kvaerner Holding but would reportedly realise a loss of Nkr1.5 billion in its stake was sold at the current stockmarket price.

A 10-year agreement in place between Aker and the government to maintain their ownership in contractors Aker Solutions, Kvaerner and Akastor, which was intended to secure domestic ownership and jobs, is though due to expire on 22 June this year.

Analyst David Thomas of Mirabaud Securities said a prospective merger between Halliburton and Aker Solutions would pale in comparison to the abortive $24 billion combination with Baker Hughes, given Aker would have a market capitalisation of only Nkr17.7 billion, or $2.1 billion, at a price of Nkr65 per share.

He said Aker Solutions’ current market cap of Nkr14.8 billion, or $1.7 billion, is less than half the $3.5 billion break fee Halliburton had to pay when the Baker Hughes deal foundered.

The analyst stated in a note that “there is strategic sense in ‘vertically integrating’ by acquiring Aker Solutions’ subsea trees and production systems business”, though the contractor only ranks third in market share behind TechnipFMC and Schlumberger-owned Cameron in this segment.

However, he poured cold water on the prospects of an acquisition taking place, saying “this would be very much a small-morsel consolation prize for Halliburton, if there is a deal done”.

“While there is usually no smoke without fire, we do wonder whether this is just the usual gambit of testing the waters through the press,” he stated in a note.

“The other factor is whether the Norwegian government would choose to step in to protect national interests. Overall we would place a relatively low probability of an Aker Solutions takeover by Halliburton.”