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  • Halliburton-Baker Hughes
    What The Failed Halliburton-Baker Hughes Deal Means For The Oil Service Industry

    One of the biggest proposed mergers in the oil industry in recent years, the $35 billion deal between the two oil service giants Halliburton and Baker-Hughes, has been abandoned in response to opposition from the U.S. Department of Justice. Halliburton will pay a $3.5 billion penalty for the deal’s cancellation, while Baker-Hughes has noted losses related to the deal of about $500 million. Yet the stock price of both companies rose on the announcement that the merger was being abandoned. The straightforward explanation is that investors felt the deal was unlikely to go through, or would not yield favorable results if it did. Which raises the question of what they knew (or believed) that the two companies’ executives did not? Most likely, they expected the deal would not be approved, as the Justice Department looked askance at the potential combination of the second and third largest oil field services companies and its impact on competition. Since less competition and higher prices would undoubtedly be one of the benefits from the merger, the Justice Department’s concerns were a clear signal that even if allowed, the conditions, including spinning off large units, would be onerous enough to prevent those gains. The strong opposition from the oil industry obviously reinforced the government’s interpretation. INVERGORDON, SCOTLAND – FEBRUARY 02: The West Phoenix rig stands amongst other rigs which have been left in the Cromarty Firth on February 2, 2016 in Invergordon, Scotland. Rig platforms are being stacked up in the Cromarty Firth as oil prices continue to decline having a major impact on the UK’s North Sea oil industry leaving thousands of people out of work. (Photo by Jeff J Mitchell/Getty Images) The other possibility is that investors did not believe the cost savings would meet projections. Halliburton expected to be able to save $2 billion annually, or about 4% of revenue, but given the two companies size, it seems unlikely that gains from economies of scale would be widespread. No doubt there are places were combining back-office services could result in some savings, but again, these are not small firms with underemployed HR people who could accept a doubled case load. Selling off redundant rigs would simply mean creating low-cost assets available for competitors, and reducing workforce (and equipment) does not require a merger to accomplish. ADVERTISING Given the history of megamergers, which are usually driven by optimism about “synergy” and cost savings, the market was naturally skeptical about the benefits in this case. Study after study has shown that most mergers do not generate the expected benefits, and there is not much reason to think this one would have been different. The two companies were not suffering from being too small, but from the inflation that crept into their operations and costs during the boom years; a merger is hardly the best way to solve that. Indeed, the prospective merger put most cost-cutting on hold, a typical downside to mergers that is often overlooked or underestimated. Wall Street seems to feel that the combination of operational confusion before, during and after the merger, and lower than expected returns from economies of scale, would translate into a typical case of overreach and the resultant subpar financial outcome. Arguably, the merger effort represented executives desire to make a grand statement and/or hubris about their ability to sway the Justice Department to approve the deal, but that judgement awaits more analysis than can be done now. Recommended by Forbes The Commodity Bust: Those Who Don't Know Economics Are Doomed To Repeat H... Fossil Fuels' Value Not Imperiled By Climate Change SAPVoice: Are We Becoming Information-Rich, But Knowledge Poor? Oil Prices Are Volatile. Get Over It. Despite Drilling Decline, U.S. Natural Gas Falls To $2 MOST POPULAR Photos: The Most Expensive Home Listing in Every State 2016 TRENDING ON FACEBOOK No Matter What Trump Says, Coal Mining Jobs Are Not Returning To West Virg... MOST POPULAR Photos: Donald Trump Through The Years MOST POPULAR This Drone Will Follow And Record You On Your Command The message to the service industry generally is that cost control is going to be their obsession for the near-term future.

  • Hilton Hotels
    Hilton’s man in the Middle East

    Established by Conrad Hilton in 1919, Hilton Worldwide became the largest hotel chain globally in January, according to the number of hotel rooms and international presence.

  • Libya
    What A War With ISIS in Libya Would Look Like

    ISIS in Libya serves as intermediary between the group’s “capital” in Raqqa and its eight other African affiliates in Algeria, Egypt, and elsewhere.

  • Riyadh Metro Project
    Riyadh Metro to create 23,000 jobs for citizens, says governor

    The governor made the comments after signing a memorandum of understanding with the Ministry of Labor, following an inspection tour at the King Abdulaziz Public Transport project, a local publication reported.

  • Turkey
    America Loses Its Man in Ankara

    Davutoglu was seen as a reliable U.S. ally and voice of sobriety inside a government turning increasingly authoritarian under President Recep Tayyip Erdogan. He was widely considered a deft diplomat who was far more tolerant of the Kurds — America’s proxy ground force against the Islamic State — than his president.

  • Climate Change
    Climate Change Might Make the Arab World ‘Uninhabitable’

    Climate change will soon transform both North Africa and the Middle East into an uninhabitable zone. According to research conducted by the German Max Planck Society and the Cyprus Institute, the Arab world currently is experiencing unprecedented severe heat waves during summer.

  • Anti-ISIS Campaign
    Poll finds Americans see fight against ISIS going better

    Americans' perceptions of the U.S. military's fight against ISIS are becoming more positive, though a majority still view the effort as going badly, according to a new CNN/ORC Poll.

  • Iraq
    Iraq routed ISIS from Ramadi at a high cost: A city destroyed

    This is what victory looks like in the Iraqi city of Ramadi: In the once thriving Haji Ziad Square, not a single structure still stands. Turning in every direction yields a picture of devastation.

  • Arab Peace Initiative
    Video: A Conversation on Security and Peace in the Middle East with Prince Turki al Faisal and retired IDF Maj. Gen. Yaakov Amidror

    Watch a pathbreaking public dialogue between senior national security leaders from two old adversaries - His Royal Highness Prince Turki bin Faisal, Saudi Arabia's former intelligence chief and one-time ambassador to Washington, and retired IDF Maj. Gen. Yaakov Amidror, former national security advisor to Prime Minister Netanyahu.

  • Syria
    Syria’s “monument men” save thousands of historic artifacts

    But a trove of Palmyra's smaller treasures were saved by dedicated archaeologists -- Syria's very own Monument men and women, led by Chief of Antiquities Maamoun Abdulkarim.