Former Chairman & Chief Executive Officer, Halliburton
Halliburton CEO Dave Lesar on CNBC discussing the Baker deal
November 18, 2014, interview with Halliburton CEO Dave Lesar on CNBC to discuss the Baker deal.
About David M.b.a.
In a November 2014 CNBC interview, Halliburton CEO Dave Lesar discussed the company's proposed acquisition of Baker Hughes. Lesar described the deal as a long-term strategy, stating the combined company would be "a fantastic company with great people, great technology, and a great US company that's going to make a lot of jobs." He said feedback from customers, particularly national oil companies, had been "unanimous" and positive, and that he had received inquiries from private equity and other companies interested in potential assets that might be divested. Lesar also said Halliburton was "laser focused on returns to shareholders" and would use divestiture proceeds for share buybacks. Lesar also addressed the impact of lower oil prices on the industry. He said volatility was harmful, but that the industry could adapt if prices "settle into a range and stay there for a while." He noted that Halliburton was hiring 21,000 people that year and that the combination with Baker Hughes would expand career opportunities. Lesar added that the U.S. unconventional oil and gas sector was providing energy independence, creating jobs, and developing technology, which he described as "fantastic for the US in the long run."
Transcript (39 segments)
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Interviewer0:00
CEO Dave Lesar, morning, good to have you here. I spoke to a number of your shareholders over the last 24 hours. Many have a very hard time arguing with the strategic rationale behind the deal, but a few certainly say, 'Man, you're paying a big price,' and they worry that it's too much. What do you tell them?
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David Lesar0:18
I tell them we are putting a great company together. We're not doing this transaction for next quarter, next year, but for the next 10 and 20 years. And we've created a fantastic company: great people, great technology, and a great U.S. company that's going to make a lot of jobs.
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Interviewer0:37
Another question I've gotten that people want to ask is why now in terms of timing. It's not as though this idea was foreign to you or something that you might not have thought about a year ago or a year from now. The approach, I'm told by the people who worked on the deal, was about five weeks ago. You got it done fairly quickly, but why in particular choose to move at this time?
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David Lesar0:55
Well, basically, I believe stronger is better. I don't care what the market is throwing at you at any point in time. We'll be a bigger company, we'll have more product lines, we'll have more technology. We have about 140,000 employees, so I don't care what the market throws at us, we're going to be in good shape.
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Interviewer1:14
But is it about oil prices or not?
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David Lesar1:16
It was not oil price driven. It was the right time to put these companies together.
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Interviewer1:20
Why the right time then? That's what I'm trying to understand, because as you look at the expansion of the unconventionals in the U.S., the growth in the deepwater in other parts of the world, the national oil companies demanding more from the service companies...
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David Lesar1:35
I just thought a bigger, stronger, integrated company was what was needed to compete in this marketplace.
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Interviewer1:42
David, last week there was a comment that really set this group down. Thank you for being on the show. John Lindsay, who's a really terrific CEO, replaced Mr. H at H, just said, 'Look, I've said over and over, when it gets to 75, that's when people change drilling budgets.' We're at 75. Are people changing drilling budgets?
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David Lesar2:03
People are looking at their drilling budgets at this point in time. I've always said a fairway for the oil and gas operators, especially the unconventional players in the U.S., is between $80 and $100. What really hurts the industry is the volatility. Our industry is a great, adaptable industry. If prices will go somewhere and sit for a while, our customers, the service companies, and everybody will be able to adapt and make money at that level.
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Interviewer2:30
I like the fairway analogy because the question then becomes, where's the bunker? We're not in the bunker yet. At what number would we be in a bunker?
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David Lesar2:39
You know, if I could predict where oil prices were going, I wouldn't be sitting here as a CEO at Halliburton. I'd be sitting in the Bahamas somewhere, probably sipping on a nice drink.
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Interviewer2:47
Maybe I've drunk the Kool-Aid of Jim Brown, your great president of the Western Hemisphere, but I always thought you were so technologically superior to Baker Hughes that you wouldn't want to join with them.
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David Lesar2:56
No, really, what Baker brings to us is some complementary product lines in areas that we did not have a very large presence. Production chemicals is one, artificial lift is another. So from a complementary standpoint, they did have some technology that we did not have. Plus, they have some fantastic people. It's a talented organization combined with our talented people. I think we're putting together the industry bellwether.
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Interviewer3:23
You talked about hiring more people, but one of the things that I've always been really impressed with what Halliburton's doing in this country is you've probably been one of the biggest hirers in this country. If you put Baker Hughes and Halliburton together, then it would seem to be that there would be less bidding for talent. When I go on the Help Wanted, you're there, Baker Hughes is there. Why would there not be a nice break for Halliburton shareholders and not as good for the workers?
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David Lesar3:48
No, this is... I mean, both companies are growing today. And as you alluded to it earlier, we're going to hire 21,000 people just in Halliburton this year. That's a lot of jobs for Americans, not only blue-collar but white-collar and professionals. You add that to the capability, the growth we're seeing out of Baker, and I think it actually expands career opportunities not only for existing employees but those that we want to hire going forward.
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Interviewer4:16
Your deal included the willingness on your part to divest businesses worth $7.5 billion in revenues, $3.5 billion breakup fee, all of this to address at least concerns about antitrust impediments here in this country. I wonder, though, about those national oil companies. You mentioned them. In China, for example, where we've seen a great deal of antitrust opposition lately to deals, are you concerned that the national oil companies in some of these other countries are going to have antitrust concerns that perhaps are greater than we have here?
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David Lesar4:44
Actually, not really. We did a big reach-out yesterday after we made the announcement. We talked to almost all of our large customers. The feedback has been unanimous. It's been positive. National oil companies, in particular, they see that, again, a stronger, more well-developed organization can help them in a way that neither of us could standing on our own.
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Interviewer5:08
Unanimous? I mean, in other words, nobody had... nobody... I have not heard from a single customer that does not like this deal. In terms of the asset sales that may have to take place, I'm curious, have you gotten a lot of inbound inquiries already on some of those assets?
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David Lesar5:23
I can tell you when we announced this deal yesterday, I have a big email box. My email box filled up with people, private equity, public companies, private companies, wanting to basically look at anything that we might have to dispose of. But I say, let's let the process go forward with antitrust. We don't believe that we're going to have to divest the $7.2 billion. Whatever we do, we will, but there will be very many willing buyers out there.
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Interviewer5:52
What I was concerned about, among a number of things, is that let's say you do have to divest. I mean, right now the idea is to put Baker Hughes together with Halliburton, you go up against Schlumberger, it's one-stop shop. What if the Justice Department makes you divest up, that makes it so that you're back in the same conundrum?
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David Lesar6:08
We don't see that happening. We have the best antitrust counsel out there. We have studied this thing to death, as you can imagine. We would not have done this deal if I didn't believe we would get it through the regulatory bodies and emerge with a company that is stronger than both of us going in.
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Interviewer6:26
We're going to get a Senate vote on Keystone today. Think it gets done?
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David Lesar6:28
Who knows? I hope so. I probably will get approved through the Senate, but whether it gets approved after that is anybody's guess.
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Interviewer6:38
Any ramifications for a veto on that front?
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David Lesar6:41
Not for our business. I mean, I think it would be another good, solid indicator of what can happen from an energy standpoint in this country. I mean, you look at the unconventionals, both oil and gas, you look at the production that the service companies and our operators and our customers are doing here in the U.S. It's giving us energy independence, it's creating jobs, it's developing technology. All of that, I think, is fantastic for the U.S. in the long run, and I think everyone should work together to make this energy dream continue to come true.
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Interviewer7:16
Let's come back to the stock price for a moment. It was down rather sharply yesterday, although to be fair, when investors first heard about the prospects of this deal, it had moved up. The Heard on the Street column in the Journal today, though, writes the following, and I'd like to get your reaction: Your shareholders, with 64% of the combined company, would be entitled to, they say, $7.1 billion of the $11 billion in synergies, or something along those lines, in present value terms. But they say that doesn't even cover the $8.2 billion cash part of the deal. For Halliburton investors, the deal's benefits will have to come from the stock being rewarded with a higher multiple down the line, and that's where it comes from. Do you agree?
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David Lesar7:56
This is a great company we're putting together. And so yes, some of it comes from synergies. We didn't do this deal for the synergies. We did this deal for the people we get, for the technology we get, for the footprint that we get. I do believe that the multiple will increase, but all of our shareholders are going to benefit from this thing. I can't be more excited about this thing. And all of our shareholders I talked to yesterday, especially the long holders, they like this deal. They understand why it came together. As I said, this is not a deal for next quarter or next year. This is a company that 10, 20, 30 years from now, people are going to look back on and say, 'Man, that was a fantastic idea,' and what a huge amount of value it's created.
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Interviewer8:40
Some of the people who advised in the deal tell me the ultimate goal is to get a multiple similar to or equal to that of Schlumberger. Do you believe that you will be able to command that?
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David Lesar8:48
That's certainly going to be my goal.
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Interviewer8:51
No, one of the things that I've always loved about Halliburton, you got a big buyback, you've been in there. I've been recommending your stock for years because you have the greatest conviction. Suddenly you're just issuing a lot of stock. I mean, you have to understand that some people who just love the fact that you were putting your money where your mouth is now say, 'Wow, I don't know.' I mean, you're issuing tons.
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David Lesar9:06
We believe this transaction will be accretive one year, accretive from a cash flow standpoint, one year after we close. We are also committing to take the divestiture proceeds and buy back shares with that. So if you take that combination, Jim, I can tell you we are laser-focused on returns to shareholders. We are laser-focused on getting that money back to them, and we are not backing off that. You will see money coming back, and you'll continue to see buybacks.
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Interviewer9:34
Want to return to the Halliburton issue. To me, when I talk to people in the field using your technology, the idea that a well might cost $70 at $70, you're now getting it for $40 a barrel. Shouldn't that mean that as you lower the cost of drilling, that your firms will not cut back?
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David Lesar9:53
Well, I think, you know, the combination of technology, the combination of efficiency that we are bringing to the table has in fact reduced the days to drill a well, which means the cost to drill that well is lower. And therefore, I think that as oil prices do decline, I think people will be more reluctant to give up their rigs, give up their spot in line. And, you know, as I said, we're just really positive about this new company and where the U.S. oil industry is going.
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Interviewer10:24
Let you go in a sec, but finally to this point, the falling oil, though, I mean, isn't that taking capex budgets down, even though it may be less expensive to drill a well?
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David Lesar10:32
It is, but as I said, volatility is bad, finding the fairway is good. And so if oil prices settle into a range and stay there for a while, we are an adaptable industry, both our customers and the service companies, and we can make money. Just give us time to get there.
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Interviewer10:51
If oil goes to 65, does this still...?
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David Lesar10:53
It will have marginal impact on us.
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Interviewer10:56
Mr. Lesar, thank you so much for joining us. Appreciate it. That was our Chairman and CEO of Halliburton.