M & A is alive and well and it appears that the next hot sector for consolidation is energy as oil prices continue to fall.
The surprise announcement that the world's No. 2 oil-field-services provider, Halliburton (HAL), made an offer to buy the No. 3 oil-field-service producer, Baker Hughes (BHI), caught the market off guard. It created a bit of excitement in the industry as investors consider the impact of such a deal driven by the realization of plunging oil prices possibly sending the energy industry into a tailspin.
Now realize that these are two of the oldest names in that industry - Halliburton dating back to 1919 and Baker International and Hughes Tool company each dating back to 1908 (they became Baker Hughes in a 1987 merger). Now given the dramatic collapse in the price of oil over the past 4 months, there must be a lot of conversations taking place in the C-suite at many companies in the energy sector about what the future holds and what opportunities might exist. This dynamic is now ripe and any buyer with cash on hand is anxiously chomping at the bit to take advantage of "the sale on Wall Street" at the moment.
The initial overture by HAL was welcomed by BHI as both must have been considering the next move in an industry under pressure. A HAL/BHI combination would give the new company much more international exposure along with a more robust product line needed to compete in the future. Investors and speculators loved the news, sending BHI up 17 percent and HAL up 6 percent by end of trading on Friday.
Under terms of the deal, announced Monday , BHI shareholders will receive 1.12 HAL shares + $19 in cash for each share they own. At Friday's closing price that means that this deal is an $80 number. Not so bad considering that BHI was trading at $50 last Wednesday. With this agreement now in place, HAL has succeeded in eliminating its competitor while expanding its business at a very uncertain time in the industry.
But remember, "It ain't over until the fat lady sings!" There are a number of regulatory hurdles to jump over, so investors should be paying close attention to how this story unfolds.
Speculation is now running rampant as investors and computer algorithms play "connect the dots" to figure out who is next in an industry that is sure to undergo some more consolidation. Names that have already been identified by analysts on the Street as possible candidates include: Kodiak Oil and Gas (KDKN), Marathon Oil (MRO), Northern Oil and Gas (NYSE MKT: NOG), Anadarko Petroleum (APC), Pioneer Natural Resources (PXD) to name just a few.
The night is young - there is more excitement/opportunity to come!
Commentary by Kenny Polcari, director of NYSE floor operations at O'Neil Securities. He is also a CNBC contributor, often appearing on " Power Lunch ." Follow Kenny on Twitter @kennypolcari and visit him at kennypolcari.com.
Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.