Halliburton to Buy Baker Hughes

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(HAL, $50.94, down $4.14 midday)

(BHI, $67.13, up $7.24 midday)

Oilfield services giant Halliburton Company has agreed to buy competitor Baker Hughes Incorporated for $34.6 billion in cash and stock.  The deal is valued at approximately $78.62 per share.

Halliburton is prepared to divest assets, if doing so would help the deal clear antitrust hurdles.

BHI shareholders could see any of the following scenarios:

• The deal is completed, with BHI shareholders receiving approximately $78.62 per share in cash & stock.

• The deal falls through, sending BHI shares back down to the low $50’s.

• A competing bid could come through from Schlumberger — or another large company — which could incite a bidding war; although whether an eventual deal clears antitrust hurdles is a completely different matter.

All eight 2013 and 2012 Goodfellow LLC stock portfolios

dramatically outperformed both the S&P 500 and the Dow!

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My recommendation is that BHI shareholders plan to sell as the stock approaches the mid-$70’s, because:

• there will be very little upside left to the share price.

• there will be very little upside to the share price of their new HAL shares.  (In a typical buyout scenario, the company doing the purchasing — Halliburton — has a stagnant share price for many months as it absorbs the acquisition, and Wall Street watches the finances of the new company shake out.)

• their cost basis calculation, when it’s time to file income taxes, will be more complicated than most investors and tax preparers are easily capable of dealing with (and remember, you are paying accountants for the time they spend on this).

• investors need to always consider the time value of money.  If investors hold shares for nine months, for example, waiting for a deal to go through, that’s nine months of time that their capital could have been invested in an undervalued growth stock with a bullish chart, ideally continuing to grow.

Lastly, all BHI shareholders who would be aghast to see this deal fall through should use stop-loss orders to protect their capital.  Because whether you are in a profitable position today, or at a loss, on BHI shares, the stock will fall down to the lower $50’s if the deal falls through.

I’ve been recommending various oilfield services stocks all year, here at Goodfellow LLC, in a springtime article at StreetAuthority, and as recently as November tenth in Monday’s Buy List.  This industry group is characterized by strong balance sheets and undervalued stock prices.  The stocks got slammed during the October market correction, and have recently bottomed.  Patient investors could buy low and await the next price run-up.

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Send questions and comments to research@GoodfellowLLC.com.

Happy investing!

Crista Huff

President

Goodfellow LLC

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