Halliburton Co. (NYSE: HAL) is facing hurdle after hurdle in its attempt to complete one of the biggest mergers in the history of the oil sector. But completing its acquisition of Baker Hughes Inc. (NYSE: BHI) would be a huge catalyst for the Halliburton stock price in 2016.
In 2014, Halliburton snatched up Baker Hughes for $34.6 billion. The deal combines the second- and third-largest oil field services (OFS) companies in the world. If the government approves the deal, the new firm will provide strong competition against the OFS leader - Schlumberger Ltd. (NYSE: SLB).
But the U.S. Department of Justice (DOJ) has repeatedly scrutinized the deal for possibly violating antitrust laws and obstructing fair business competition.
Halliburton has agreed to sell parts of its business to lessen the blow of the merger's monopolistic size. Last April, the company proposed selling all of its drill bit assets for up to $2 billion. The firm announced in September it would sell a second group of assets that includes equipment for building wells and controlling oil flow.
The DOJ was expected to decide by today (Tuesday, Dec. 15) whether or not to finalize the deal. However, the agency could postpone its decision to later this week.
"Everything about this deal has turned out to be more complicated and, frankly, more challenging than what was initially envisioned," said William Herbert, co-head of energy investment firm Simmons & Co. International, to The Wall Street Journal.
The Halliburton stock price has fallen due to the yearlong plunge in oil prices. Although it's up 2.7% to $37.53 a share today, HAL stock is still down 7.1% in 2015. Meanwhile, the Baker Hughes stock price is down 16.6% this year.
Despite the antitrust hurdles, the Halliburton stock price could offer a solid investment opportunity in 2016 for one important reason...
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Why the Halliburton Stock Price Could See Big Gains in 2016
The company is changing the landscape of the oil field services sector.
You see, Halliburton's takeover of Baker Hughes shows how it's fighting to lead the OFS sector into a new era of vertical integration. That means Halliburton is making the sector more stable and efficient by buying Baker Hughes' assets and operations.
Money Morning Global Energy Strategist Dr. Kent Moors says this is healthy for the oil market. Halliburton and Schlumberger's race to be the hero that stabilizes the OFS sector will advance the long-term rise in oil prices.
"Halliburton and Schlumberger continue to compete in parallel attempts at stringing together components spanning from equipment manufacturers, to rig providers, to well completion, and field services in 'one-stop shopping' assemblages intended to restrict competition," Moors said back in September.
Even if the Halliburton-Baker Hughes merger isn't passed this week, it will eventually finalize in 2016. That prospect has already been factored into analysts' predictions for HAL stock...
According to Yahoo! Finance, analysts give Halliburton a one-year price target of $46.35 a share. That's a 21.1% increase from yesterday's closing price of $36.55.
Alex McGuire is an associate editor for Money Morning who writes about energy. Follow him on Twitter for all the biggest oil and gas updates.
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