Weatherford Quits $1 Billion Offering for Deals in Fast Reversal

  • Analysts said funding was earmarked for Halliburton assets
  • Passing up acquisitions may prove better for investors

Within hours of Weatherford International Plc’s announcement that it would raise $1 billion in a move some analysts linked to interest in making a bid for Halliburton Co. assets, the oilfield services provider pulled a U-turn.

"While investor interest was strong for this offering, we are unwilling to sell securities at prices that do not reflect the value we have created at Weatherford," the company said in a statement late Monday. Weatherford "continues on its resolute course of focusing on its core businesses and the efficiency of its operations."

The world’s fourth-largest oilfield services provider had said early Monday it would raise the capital through the sale of stocks and convertible notes. Many analysts expected Baar, Switzerland-based Weatherford to use the new funding to bid for some, if not all, of the assets Halliburton, the No. 2 oil-services provider, is selling to gain regulatory approval for its merger with Baker Hughes Inc., the world’s third biggest.

Weatherford rose 10.7 percent to $9.31 in New York on Tuesday after tumbling 17 percent the day before.

Wuen Fung Hor, a spokeswoman at Weatherford, did not immediately return phone and e-mail messages.

‘Logical Buyer’

Halliburton’s drilling services line, which is embedded within its Sperry Drilling business, is expected to generate nearly $2 billion in sales this year, Jud Bailey, an analyst at Wells Fargo, wrote Tuesday in a note to investors titled, "WFT: On Second Thought." Weatherford was viewed as a "logical buyer" for the business, he wrote.  

Investors now may be left with mixed feelings.

"On the one hand, we believe some investors will welcome WFT’s
discipline to walk away from the deal due to price," Bailey wrote, "while others will be more skeptical after the company’s change in tone towards M&A from just a few weeks ago."

While the second statement Monday did not address how the offering cancellation would impact acquisition plans, it’s reasonable to conclude the company won’t be chasing deals of "sufficient scale requiring significant financing," Bill Herbert, an analyst at Simmons & Co. wrote Tuesday in a note to investors.

Correcting Course

Prior to this week’s announcements, Weatherford had been on a course to lower debt, sell non-core businesses and boost investor confidence by moving on from its own troubles that included amending earnings after accounting errors.

The pursuit of Halliburton’s assets by Weatherford was not attractive, Brad Handler, an analyst at Jefferies, wrote Tuesday in a note to investors.

"If it passes up acquisition opportunities to insure stability, then we think investors are better off," Handler wrote.

The sale of Halliburton’s drilling services and drill-bits businesses could fetch a total price of as much as $5 billion, Angie Sedita, an analyst at UBS, wrote Monday in a note to investors.

Bernard Duroc-Danner, chief executive officer at Weatherford, told analysts and investors on a July 23 conference call that he was very content with the company’s limited line of oilfield service offerings and wasn’t looking to expand.

No More Daydreaming

"I think our time is better used focusing on what we have than on daydreaming about what we could be adding or not," Duroc-Danner said. "Even if we did daydream, very difficult for us."

The conflicting announcements Monday from Weatherford, often referred to by its ticker symbol WFT, are a "blow to management credibility," analysts at Tudor Pickering Holt & Co. wrote Tuesday in a note to investors.

Proposing to raise capital for acquisitions after targeting debt reduction marked an "apparent about-face on its prior commentary," according to the note. "Frankly it’ll take a lot longer for WFT’s credibility to recover."

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