WEBVTT - S&P's Glickman on Halliburton: US Focus Still Poses Risk(Audio)

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<v Speaker 1>trading around their best levels. That is currently hired by

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<v Speaker 1>a hundred and sixteen points. Sysi He's game fifteen and

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<v Speaker 1>three points, and the US ten yeeld jumps to one

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<v Speaker 1>point eight six per cent. Nine out of tennis B

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<v Speaker 1>sectors are higher, led by gains in consumer discretionary, consumer

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<v Speaker 1>staples and the financials small losses in energy down, Transports

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<v Speaker 1>rise fifty nine as a biotechs game ten and the

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<v Speaker 1>vix is down five point seven percent down. Leaders included Microsoft,

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<v Speaker 1>Home Depot and Goldman. Sachs, Boeing, IBM, and Fiser led

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<v Speaker 1>to the downside when resorts gained as much as seven percent.

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<v Speaker 1>Food service company Cisco gained five percent after its results,

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<v Speaker 1>while Seagate fell another six percent following Friday's nineteen percent decline.

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<v Speaker 1>Live from the first Breaking News Descomb, Bill Maloney, Katherine,

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<v Speaker 1>thank you Bill, and to hear live breaking news over

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<v Speaker 1>Herd Oyl is falling for a second day as the

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<v Speaker 1>rocks exports approached a record high in April. And that's

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<v Speaker 1>adding barrels to a worldwide supply. Clock West types is

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<v Speaker 1>intermedia crude oil down a dollar thirteen of barrel two

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<v Speaker 1>and a half percent, trading at forty four seventy nine,

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<v Speaker 1>by gold up two dollars ten cents the ounce at

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<v Speaker 1>twelve sixty and then ten year treasury down eight thirty

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<v Speaker 1>seconds with the old of one point eight six percent.

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<v Speaker 1>And that's a Bloomberg business flash. This is taking stock

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<v Speaker 1>with Kathleen Hayes and Grim Box on Bloomberg Radio. Haliburton

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<v Speaker 1>Baker Hughes calling off their twenty eight billion dollar merger.

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<v Speaker 1>Let's find out why. Stuart Glickman, director and equity research

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<v Speaker 1>analysts for SMP Capital i Q joins us now Stewart,

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<v Speaker 1>thank you very much for being with us. So what

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<v Speaker 1>really turned this off the rails? Was it the regulatory

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<v Speaker 1>environment or is it more likely I shouldn't pre judge it.

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<v Speaker 1>Is it the price of oil? So it's it's a

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<v Speaker 1>couple of reasons. I think from the get go, this

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<v Speaker 1>merger was going to come under intense scrutiny from the

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<v Speaker 1>Department of Justice because we were talking about prospective merger

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<v Speaker 1>involving the number two and number three players in oil services.

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<v Speaker 1>So that's that's gonna rate, that's going to get um

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<v Speaker 1>some eyebrows raised just on its space. And I think

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<v Speaker 1>I think what kind of made it even harder to

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<v Speaker 1>get through was the deteriorating situation involving industry economics. It's

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<v Speaker 1>you know, at the time that the deal was announced,

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<v Speaker 1>this was in the call it November four. Yeah, it

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<v Speaker 1>was seventy bucks. Seventy bucks for barrel, No even more

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<v Speaker 1>than that, I believe. Yeah, it was above it was

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<v Speaker 1>seventy higher exactly it was. It was in the mid

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<v Speaker 1>seventies when this deal was announced, and I think it

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<v Speaker 1>was intended to be kind of a defensive move against

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<v Speaker 1>you know, weakness and crude prices. But I don't think

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<v Speaker 1>anybody anticipated that crude was going to drop, um, you know,

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<v Speaker 1>down to the thirty dollar range, even though it's recovered

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<v Speaker 1>slably since then, and we're looking at around forty five

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<v Speaker 1>dollars a barrel. Now, UM, there's just an awful lot

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<v Speaker 1>of excess capacity when prices fall that far. But having

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<v Speaker 1>said that, wouldn't it make sense to buy these assets

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<v Speaker 1>when there's turbulence and the asset values have declined, rather

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<v Speaker 1>than waiting for a rebound in oil prices. UM, So

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<v Speaker 1>you know that that it's an interesting theory. I think

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<v Speaker 1>the problem for a lot of players is that, even

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<v Speaker 1>though you know, price stock prices have come down and

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<v Speaker 1>so assets can be had for cheaper than the otherwise

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<v Speaker 1>would be UM on a forward value ouation basis, a

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<v Speaker 1>lot of stocks still don't look cheap. UM you have

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<v Speaker 1>you have the entire industry really trading above historical multiples.

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<v Speaker 1>That's true for Haliber, and it's true for Baker Hughes Um,

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<v Speaker 1>and it's even true for some of the industry behame

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<v Speaker 1>this like Lake lamberget Now, Baker Hughes is what going

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<v Speaker 1>to get a three and a half billion dollar breakup fee?

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<v Speaker 1>That's right, So they're gonna get exactly they're gonna get

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<v Speaker 1>three and a half billion dollars and they've they've already

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<v Speaker 1>outlined some of what they plan to do. Uh, they're

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<v Speaker 1>going to buy back their own shares to the tune

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<v Speaker 1>of about one point five billion, which I calculate that

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<v Speaker 1>makes up maybe seven percent of their shared outstanding. Uh,

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<v Speaker 1>they're gonna reduce their debt by about a billion UM.

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<v Speaker 1>They already have a relatively low net at the capital ratio,

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<v Speaker 1>so I think it kind of bolsters their balance sheet

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<v Speaker 1>a little bit in the near term while they fight

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<v Speaker 1>through this this this fundamental weakness, like everyone is um.

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<v Speaker 1>But then they also have to do other things beyond that.

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<v Speaker 1>They have to undertake another round of cost cuts because

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<v Speaker 1>all this merger was pending, both Baker Hughes and Haliburt

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<v Speaker 1>and really sidestep a lot of cost cuts because you're

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<v Speaker 1>just not sure exactly where you're gonna cut and how

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<v Speaker 1>until it gets completed. And I think with this off

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<v Speaker 1>the table, you're gonna you're gonna see a lot more

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<v Speaker 1>of that. Stock of Baker Hughes is down two and

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<v Speaker 1>a half percent today. Is Baker Hughes is stock you

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<v Speaker 1>want to buy? UM? I have a whole opinion on

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<v Speaker 1>the stock. I think, you know, as as a defensive play, UM,

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<v Speaker 1>it has some things going for it, like the fact

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<v Speaker 1>that it's net debt to capital ratio is relatively low,

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<v Speaker 1>so near term they can probably UM tread water along

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<v Speaker 1>with you know, others in the industry. I think the

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<v Speaker 1>challenges that they have that that UM make it less

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<v Speaker 1>compelling and not a buy opinion in my In my

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<v Speaker 1>view is, uh, you know, they have they have organizational challenges.

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<v Speaker 1>They have to decide which products and services they would

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<v Speaker 1>like to be focused on and which ones they don't.

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<v Speaker 1>They right now, they sort of are trying to be

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<v Speaker 1>all things to all people UM for the most part,

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<v Speaker 1>and I think they're planning on being a little more

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<v Speaker 1>streamlined and a little more focused than they are at

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<v Speaker 1>the moment. How about Haliburton shares a Haliburton though they're

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<v Speaker 1>higher today, what is going on there because the deal

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<v Speaker 1>is off there? Up two and a half. Yeah, the

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<v Speaker 1>market didn't like the deal for the most part since

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<v Speaker 1>it since it began. I think they're trading up as

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<v Speaker 1>a UM buyers looking like thinking that they kind of

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<v Speaker 1>sidestep the landline. UM. But I'm I'm not I'm not

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<v Speaker 1>buying this rally. I'm not in favor of Haliburton at

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<v Speaker 1>the moment. I have a cell opinion on how I

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<v Speaker 1>think that the challenges that present in North America are

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<v Speaker 1>going to continue through and UM, that's fair. That's their cornerstone,

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<v Speaker 1>that's that's really the heart of their franchises North America.

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<v Speaker 1>The one name within oil services that I still like

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<v Speaker 1>is Schlamberge, and that's because they're more internationally focused. Tell

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<v Speaker 1>us about Slumberge because they seem to have gone the

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<v Speaker 1>cost cutting route a lot faster than many of their competitors. Yeah,

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<v Speaker 1>I mean Haliburton and slumber have both done cost cuts

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<v Speaker 1>to some degree, but I think Slumberja was a little

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<v Speaker 1>bit more UM extensive with that, Um, they haven't had

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<v Speaker 1>the distraction of the pending merger to deal with. They

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<v Speaker 1>are much more internationally focused, and so the upstream, the

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<v Speaker 1>upstream players that are cutting spending, they're doing more of

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<v Speaker 1>that cutting in North America than they are international. Thank

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<v Speaker 1>you very much. Stuart Glickman is director and equity research

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<v Speaker 1>analyst for SMP Capital i Q speaking about Haliburton and

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<v Speaker 1>Baker Hughes. They're calling off their twenty eight billion dollar merger.

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<v Speaker 1>You're listening to taking Stock on Bloomberg Radio. Coming up

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<v Speaker 1>on taking Stock, a look at Puerto Rico. It's going

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<v Speaker 1>to default on four hundred and twenty two million dollars

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<v Speaker 1>from its government Development Bank and a bond payment. What's

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<v Speaker 1>next for the Commonwealth