| Peer-Reviewed

The Merger of Halliburton and Baker Hughes: A Risk Analysis

Received: 12 September 2016     Accepted: 6 March 2017     Published: 21 March 2017
Views:       Downloads:
Abstract

The aim of the present study is to explore the risks and benefits of mergers compared to those of strategic alliances and test the classic agency theory in relation to firm’s and shareholders interest. Using the case study methodology, the study examines the recent announced merger of Halliburton and Baker Hughes exploring the possible risks the merger itself may open up for the two firms, reviewing a possible alternative strategic alliance and the effects it may have. The paper applies a qualitative analysis based on empirical data of similar case studies projecting past experiences on future events. The study concludes that the merger was in the best interest of both companies, a merger though filled with the risk of specialisation within a shrinking market still poses the best rate of survival for firms in the gas and oil industry. The paper includes implications for strategic decision making and risk management policy in the oil & gas industry.

Published in International Journal of Accounting, Finance and Risk Management (Volume 2, Issue 2)
DOI 10.11648/j.ijafrm.20170202.11
Page(s) 45-56
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2017. Published by Science Publishing Group

Keywords

Merger, Market, Strategic Alliance, Risk, Oil

References
[1] Abbott, K. (2006). A review of employment relations theories and their application. Problems and Perspectives in Management. 1 (1), 187-199.
[2] Andrade, G. & E. Stafford, (1999). Investigating the Economic Role of Mergers. Chicago: University of Chicago.
[3] Andrade, G., Mitchell, M. L., & Stafford, E. (2001), New evidence and perspectives on mergers”, Journal of Economic Perspectives, 15 (2), 103-120.
[4] Anderson, S. (2015). Mergers and Acquisitions From Start to Finish. November 6, 2014, National Business Institute, webcast presentation Feb. 2015.
[5] Arsov, A. (2015). Is the Time to Make Room for the Rest of the World? Social Science Research Network (SSRN), pp.1-21. Retrieved February25, 2015 from SSRN:http://ssrn.com/abstract=2570594or http://dx.doi.org/10.2139/ssrn.2570594.
[6] Austin, J. E. (2000). Strategic collaboration between nonprofits and business. nonprofit and voluntary sector. Quarterly, 29 (1), 69-97.
[7] Baker Hughes (2014). Incorporated SWOT Analysis. In Baker Hughes Incorporated Company Profile - Business Description, Strategies and SWOT Analysis, Baker Hughes, Inc. Company Report pp. 5-10. Retrieved February 26, 2015 from: http://www.researchandmarkets.com/report./bhi_baker.
[8] Barney, J. B., & Hansen, M. H. (1994). Trustworthiness as a source of competitive advantage”, Strategic Management Journal. 15 (S1), 175-190.
[9] Barros, P. P., & Cabral, L. (1994). Merger policy in open economies. European Economic Review. 38 (5), 1041-1055.
[10] Bikchandani, S., Hirshleifer, D., & Welch, I., (1992). A theory of fads, fashion, custom, and cultural change as information cascades. Journal of Political Economy. 100 (5), 992–1026.
[11] Blair, M. M., & Stout, L. A. (2001). Director accountability and the mediating role of the corporate board. Washington University Law Quarterly. 79 (2), 403-448.
[12] Budd, J. W., & Bhave, D. (2008). Values, ideologies, and frames of reference in industrial relations. The Sage Handbook of Industrial Relations. London: Sage.
[13] Christensen, G. L. (1999). Cracking the cost floor. Oil and Gas Investor. Delegation of the Commission of the European Communities, Report July/August 1999.
[14] Ciulla, J. B. (2000). The Working Life: The Promise and Betrayal of Modern Work. New York, NY: Times Books.
[15] Coffee Jr, J. C. (1999). Privatization and corporate governance: The lessons from securities market failure. Journal of Corporation Law. 25 (1), 1-71.
[16] Consultants, R. B. S. (2015). A new age dawns for Oilfield Services. Local News, 2015.
[17] Cruver, B. (2002), Anatomy of Greed: Telling the unshredded truth from indise Enron, New York, NY: Avalon Publishing Group.
[18] Daily, C. M., Dalton, D. R., & Cannella, A. A. (2003). Corporate governance: Decades of dialogue and data. Academy of Management Review. 28 (3), 371-382.
[19] Das, T. K., & Teng, B. S. (2000). A resource-based theory of strategic alliances. Journal of Management, 26 (1), 31-61.
[20] Duckham, M., & Kulik, L. (2005). A formal model of obfuscation and negotiation for location privacy. In Pervasive Computing, Berlin Heidelberg: Springer, 152-170.
[21] Economist (2001). Exxon Mobile Merge. November, 22, 2001, 60.
[22] Ernst, D. & Steinhubl, M. J. (1999). Petroleum: after the megamergers. The McKinsey Quarterly 2 (1), 48-57.
[23] Farrell, J., & Saloner, G. (1985). Standardization, compatibility, and innovation. The RAND Journal of Economics. 16 (1), 70-83.
[24] Fauli-Oller, R. (2000). Takeover waves. Journal of Economics & Management Strategy. 9 (2), 189-210.
[25] Grant, R. M., & Baden-Fuller, C. (2004). A knowledge accessing theory of strategic alliances. Journal of Management Studies, 41 (1), 61-84.
[26] Gregoriou, G. N., & Renneboog, L. (2007). International mergers and acquisitions activity since 1990: Recent research and quantitative analysis. Massachusetts: Elsevier.
[27] Gupta, A. K., & Govindarajan, V. (2004). Global strategy and organization. Hoboken, NJ: Wiley.
[28] Hagedoorn, J. (2002). Inter-firm R & D partnerships: an overview of major trends and patterns since 1960. Research Policy. 31 (4), 477-492.
[29] Hansmann, H., & Kraakman, R. (2000). End of History for Corporate Law. Yale Law Journal. 89, 387-439.
[30] Harrigan, K. R., (1988). Strategic Alliance and Partner Asymmetries. Management International Review. 28 (1), 53-72.
[31] Jensen, M. C., & William H. Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, October, 3 (4), 305-360.
[32] Kaplan, N. S., (2000). Mergers and Productivity. New York, NY: Kaplan ed.
[33] Kelly, John (1998). Rethinking Industrial Relations: Mobilization, Collectivism and Long Waves, London: Routledge.
[34] Killingsworth, M. R. (1983). Labor Supply. Cambridge:Cambridge University Press.
[35] Lan, L. L., & Heracleous, L. (2010). Rethinking agency theory: The view from law. Academy of Management Review. 35 (2), 294-314.
[36] Lubatkin, M. H. (2005). A theory of the firm only a microeconomist could love. Journal of Management Inquiry. 14 (2), 213-216.
[37] Martin, G. (2006). Managing people and organizations in changing contexts. London: Routledge.
[38] Maslow, A. H. (1943). A Theory of Human Motivation. Psychological Review, 50 (4), 370-396.
[39] Mccarthy, D. J., & Puffer, S. M. (2008). Interpreting the ethicality of corporate governance decisions in Russia: Utilizing integrative social contracts theory to evaluate the relevance of agency theory norms. Academy of Management Review. 33 (1), 11-31.
[40] Mizruchi, M. S., & Koenig, T. (1988). Economic concentration and corporate political behavior: A cross-industry comparison. Social Science Research. 17 (4), 287-305.
[41] Morck, R., Shleifer, A., & Vishny, R. W. (1988) Management ownership and market valuation: An empirical analysis. Journal of Financial Economics. 20, 293-315.
[42] Mowery, D. C., Oxley, J. E., & Silverman, B. S. (1996), Strategic alliances and interfirm knowledge transfer. Strategic Management Journal, 17 (S2), 77-91.
[43] Mowery, D. C., Oxley, J. E., & Silverman, B. S. (1998). Technological overlap and interfirm cooperation: implications for the resource-based view of the firm. Research Policy, 27 (5), 507-523.
[44] Myers, P. C. (2000). Growth of an Initial Mass Function Cluster in a Turbulent Dense Core. The Astrophysical Journal. 530 (2), 119-122.
[45] National Petroleum News (2000). BP-Amoco merger opens the door. March 2000, 92(3), 16. 3/4p. Document Type: Article PLC Ticker: BP AMOCO Corp. DUNS Number: 969199660.
[46] Niskanen, W. (2007). After Enron: Lessons for public policy. Oxford: Rowman & Littlefield Publishers Inc.
[47] O’ Rourke, A. (2003). A new politics of engagement: shareholder activism for corporate social responsibility. Business Strategy and the Environment. 12 (4), 227-239.
[48] Qiu, L. D., & Zhou, W. (2007). Merger waves: a model of endogenous mergers. The Rand Journal of Economics, 38 (1), 214-226.
[49] Oliver, C. (1990), Determinants of Inter organizational relationships: integration and future directions. Academy of Management Review 15 (2), 241–65.
[50] Ralston, D., Wright, A., & Garden, K. (2001). Can mergers ensure the survival of credit unions in the third millennium?. Journal of Banking & Finance, 25 (12), 2277-2304.
[51] Rau, P. R., & Vermaelen, T. (1998). Glamour, value and the post-acquisition performance of acquiring firms. Journal of Financial Economics. 49 (2), 223-253.
[52] Ravenscraft, D. J., & Scherer, F. M. (1989). The profitability of mergers. International Journal of Industrial Organization. 7, 117-31.
[53] Salant, S. W., Switzer, S., & Reynolds, R. J. (1983). Losses from horizontal merger: the effects of an exogenous change in industry structure on Cournot-Nash equilibrium. The Quarterly Journal of Economics. 98 (2), 185-199.
[54] Stonham, P. (2000). BP Amoco: integrating competitive and financial strategy. Part one: strategic planning in the oil industry. European Management Journal. 18 (4), 411-419.
[55] Sudarsanam S. & Mahate (2006). Are friendly Acquisitions Too bad for Shareholders and Managers? Long Term Value creation and Top Management turnover in Hostile and Friendly Acquirers. British Journal of Management, 17 (1), 7-30.
[56] Sudarsanam, S. (2005). Creating Value from Mergers and Acquisitions. London: Prentice Hall International Limited.
[57] Sudarsanam, S., & Mahate, A. A. (2003). Glamour acquirers, method of payment and post-acquisition performance: the UK evidence. Journal of Business Finance & Accounting, 30 (1-2), 299-342.
[58] Teece, D. J. (1996), Firm organization, industrial structure, and technological innovation. Journal of Economic Behavior & Organization. 31 (2), 193-224.
[59] Varian, H. R. (1984). Microeconomic analysis. Norton (2nd ed), New York: Norton.
[60] Waddock, S. A. (1989). Understanding Social Partnerships: An Evolutionary Model of Partnership Organizations. Administration and Society. 21 (1), 78-100.
[61] Weiss, J. A. (1987). Pathways to Cooperation among Public Agencies. Journal of Policy Analysis and Management 7, pp. 94–117.
[62] Wohlsletter, P., J. Smith, J., & Malloy, C. (2005). Strategic Alliances in Action: Toward a Theory of Evolution. The Policy Studies Journal. 33 (3). 419-442.
[63] Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38 (2), 341-363.
[64] Zhang, X. (2005). Critical success factors for public–private partnerships in infrastructure development. Journal of Construction Engineering and Management, 131 (1), 3-14.
[65] Zollo, M., Reuer, J. J., & Singh, H. (2002). Interorganizational routines and performance in strategic alliances. Organization Science. 13 (6), 701-713.
Cite This Article
  • APA Style

    Evangelia Fragouli, Kwaku Donkor. (2017). The Merger of Halliburton and Baker Hughes: A Risk Analysis. International Journal of Accounting, Finance and Risk Management, 2(2), 45-56. https://doi.org/10.11648/j.ijafrm.20170202.11

    Copy | Download

    ACS Style

    Evangelia Fragouli; Kwaku Donkor. The Merger of Halliburton and Baker Hughes: A Risk Analysis. Int. J. Account. Finance Risk Manag. 2017, 2(2), 45-56. doi: 10.11648/j.ijafrm.20170202.11

    Copy | Download

    AMA Style

    Evangelia Fragouli, Kwaku Donkor. The Merger of Halliburton and Baker Hughes: A Risk Analysis. Int J Account Finance Risk Manag. 2017;2(2):45-56. doi: 10.11648/j.ijafrm.20170202.11

    Copy | Download

  • @article{10.11648/j.ijafrm.20170202.11,
      author = {Evangelia Fragouli and Kwaku Donkor},
      title = {The Merger of Halliburton and Baker Hughes: A Risk Analysis},
      journal = {International Journal of Accounting, Finance and Risk Management},
      volume = {2},
      number = {2},
      pages = {45-56},
      doi = {10.11648/j.ijafrm.20170202.11},
      url = {https://doi.org/10.11648/j.ijafrm.20170202.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijafrm.20170202.11},
      abstract = {The aim of the present study is to explore the risks and benefits of mergers compared to those of strategic alliances and test the classic agency theory in relation to firm’s and shareholders interest. Using the case study methodology, the study examines the recent announced merger of Halliburton and Baker Hughes exploring the possible risks the merger itself may open up for the two firms, reviewing a possible alternative strategic alliance and the effects it may have. The paper applies a qualitative analysis based on empirical data of similar case studies projecting past experiences on future events. The study concludes that the merger was in the best interest of both companies, a merger though filled with the risk of specialisation within a shrinking market still poses the best rate of survival for firms in the gas and oil industry. The paper includes implications for strategic decision making and risk management policy in the oil & gas industry.},
     year = {2017}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - The Merger of Halliburton and Baker Hughes: A Risk Analysis
    AU  - Evangelia Fragouli
    AU  - Kwaku Donkor
    Y1  - 2017/03/21
    PY  - 2017
    N1  - https://doi.org/10.11648/j.ijafrm.20170202.11
    DO  - 10.11648/j.ijafrm.20170202.11
    T2  - International Journal of Accounting, Finance and Risk Management
    JF  - International Journal of Accounting, Finance and Risk Management
    JO  - International Journal of Accounting, Finance and Risk Management
    SP  - 45
    EP  - 56
    PB  - Science Publishing Group
    SN  - 2578-9376
    UR  - https://doi.org/10.11648/j.ijafrm.20170202.11
    AB  - The aim of the present study is to explore the risks and benefits of mergers compared to those of strategic alliances and test the classic agency theory in relation to firm’s and shareholders interest. Using the case study methodology, the study examines the recent announced merger of Halliburton and Baker Hughes exploring the possible risks the merger itself may open up for the two firms, reviewing a possible alternative strategic alliance and the effects it may have. The paper applies a qualitative analysis based on empirical data of similar case studies projecting past experiences on future events. The study concludes that the merger was in the best interest of both companies, a merger though filled with the risk of specialisation within a shrinking market still poses the best rate of survival for firms in the gas and oil industry. The paper includes implications for strategic decision making and risk management policy in the oil & gas industry.
    VL  - 2
    IS  - 2
    ER  - 

    Copy | Download

Author Information
  • Management & Marketing, Business School, University of Dundee, Dundee, UK

  • Management & Marketing, Business School, University of Dundee, Dundee, UK

  • Sections