Halliburton Co. agreed to buy rival Baker Hughes Inc. in a stock-and-cash deal valued at $34.6 billion, ending weeks of discussions and merging the world’s second- and third-largest oil-field services companies.
The deal, seen helping the companies contend with falling oil prices, comes after weeks of discussions that turned hostile. The Wall Street Journal reported last week that Halliburton and Baker Hughes were in talks for a possible tie-up. On Friday, Halliburton moved to overthrow the Baker Hughes board after discussions broke down.
Tensions between the two companies appeared to have eased with the deal. “We envision a combined company capable of achieving opportunities that neither company would have realized as well—or as quickly—on its own,” Martin Craighead, chairman and chief executive of Baker Hughes, said in a news release.
Halliburton’s offer of $78.62 a share, a 31% premium to Baker Hughes’s closing price Friday, has an enterprise value of $38 billion. In morning trading, Halliburton shares fell 7% to $51.20, while Baker Hughes rose 12.6% to $67.44.
“The stockholders of Baker Hughes will immediately receive a substantial premium and have the opportunity to participate in the significant upside potential of the combined company,” said Dave Lesar, chairman and CEO of Halliburton. Mr. Lesar will continue as CEO of the new company.
Upon the deal’s completion, expected in the second half of 2015, Baker Hughes shareholders will own about 36% of the combined company. The new company will have a combined board of 15 members, including three from the Baker Hughes board.
Achieving a friendly agreement was important for a deal that is likely to face antitrust scrutiny. Skeptical regulators can be harder to win over without a willing merger partner also eager to persuade the government to bless the deal.
If required by regulators, Halliburton said it would divest businesses that generate up to $7.5 billion in revenue and would pay a $3.5 billion termination fee if the transaction fails because of regulatory problems.
On a pro forma basis, the combined company had 2013 revenue of $51.8 billion, more than 136,000 employees and operations in more than 80 countries around the world.
Under the deal, Halliburton will swap 1.12 shares and $19 cash for each Baker Hughes share. According to the companies, the deal represents a premium of 40.8% to the stock price of Baker Hughes on Oct. 10, the day before Halliburton’s initial offer to Baker Hughes.
Halliburton intends to finance the cash portion of the acquisition through a combination of cash on hand and debt financing.
The companies face a world where drilling for oil and gas has become increasingly expensive and competitive—and falling crude prices are only adding to the pressures on oil-field services firms. Those trends, industry experts say, likely spurred Halliburton to approach its smaller rival.
Combining the companies will create a new oil-field-services giant that can offer lower prices to customers, executives from both companies told analysts Monday morning.
Mr. Lesar said hydraulic fracturing in North America will be a key area where the combination of the two companies will result in big savings.
“The integration teams are moving rapidly,” Mr. Lesar said. “In particular in hydraulic fracturing, where we can our combine logistics networks.”
A takeover of Baker Hughes would create a global giant better able to compete with Schlumberger NV for huge overseas projects. The three companies “have been in a knife fight the past few years,” analysts at Tudor, Pickering Holt & Co. said.
Exploration around the globe is starting to contract. Big or small, some energy companies are demanding lower prices from their oil-field servicers in the face of crude prices that have fallen from over $100 a barrel to under $75 and show no signs of a quick rebound.
Big international oil companies are dialing back spending on megaprojects including offshore deep-water drilling.
Smaller companies that hire oil-field services companies to perform hydraulic fracturing in the U.S. are also reining in their growth plans—and have more service providers to choose from because of new entrants to the market. Companies are also able to get more oil and gas out of the ground using fewer rigs.
With global companies trimming their spending and U.S. companies “about to confront a very hard landing, major consolidation in the oil service sector has become an imperative,” said Bill Herbert, managing director of Simmons & Co. International, an energy investment bank.
Relations between Halliburton and Baker Hughes turned hostile last week, but even what transpired in the preceding month is a point of contention between the two oil-field-services companies.
Between Oct. 13, when Halliburton made its initial proposal to Baker Hughes, and Friday, when discussions appeared to implode, Halliburton concluded that Baker Hughes wasn’t engaging on the offer, correspondence between the companies’ chief executives indicates.
Baker Hughes, for its part, contended that Halliburton was pressuring its target to act quickly under an impeding deadline for board nominations that Halliburton had long known about, according to the correspondence.
Halliburton signaled it was willing to raise its mid-October offer to buy Baker Hughes before turning hostile, according to people familiar with the talks. But Halliburton didn’t come through with a raised bid before Friday, a deadline to nominate directors to the board of Baker Hughes, which had a stock-market value of about $26 billion on Friday. Halliburton’s market value was at $47 billion.
By Angela Chen. Dan Molinski contributed to this article.