Good day, ladies and gentlemen, and welcome to the Halliburton Baker Hughes Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, today's call is being recorded. I would now like to turn the conference over to Mr.
Kelly Youngblood, Vice President of Investor Relations. Sir, you may begin.
Good morning and thank you for joining us today to discuss the combination of Halliburton and Baker Hughes. Today's call is being webcast and a replay will be available on Halliburton's website. This morning, we issued a press release announcing our definitive merger agreement. A copy of the press release and the slides we are presenting today are available in the Investor Relations section on the Halliburton and Baker Hughes websites. Joining me today are Dave Lazar, CEO of Halliburton Martin Craighead, CEO of Baker Hughes and Mark McCollum, CFO of Halliburton.
Some of our comments today may include forward looking statements reflecting Halliburton's and Victor Hughes' views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward looking statements. These risks are discussed in Halliburton's Form 10 ks for the year ended December 31, 2013, Form 10 Q for the quarter ended September 30, 2014, recent current reports on Form 8 ks and other Securities and Exchange Commission filings. We undertake no obligation to revise or update forward looking statements for any reason. Now, I'll turn the call over to Dave.
Dave?
Thank you, Kelly, and good morning to everyone, and thank you all for joining us on such short notice. Today is a historic day for Halliburton shareholders, Baker Hughes' shareholders and for our combined future company. Today, we announced that Halliburton and Baker Hughes have reached a definitive agreement to combine our 2 great companies to create a bellwether global oilfield services company. Under the terms of the transaction, which has been unanimously approved by the boards of directors of both companies, Halliburton will acquire all of the outstanding shares of Baker Hughes in a cash and stock transaction valued at $78.62 per Baker Hughes share, representing an equity value of $34,600,000,000 Based on Halliburton's closing price on November 12, the day prior to Baker Hughes public confirmation that it was in talks with Halliburton regarding 34.5% and 25.9% 34.5% 25.9%, respectively. As you know, each of us has negotiated hard for the best deal for our shareholders, but there is no doubt about the strategic merits of this combination.
It is a compelling transaction with many strategic and financial benefits and we are confident will benefit both company shareholders and customers worldwide. And we've done our homework. We've assembled a world class group of advisors and are very confident this combination is in the best interest of all of our stakeholders. Now is the right time to pursue a transaction like this, because we have the right management team and our thing to say. You all know me, you know Mark McCollum.
And one thing you know about us is that we live up to our commitments. We know how to execute. We know what buttons to push to make this business work. And we know how to create value. And you know that we are laser focused on returns to you, our collective shareholders.
With this transaction, we have not veered from that path, but have rather found a partner to work with to expand our capability to provide you with industry leading returns. So why is that? Well, strategically the transaction will combine 2 highly complementary businesses and create the leader in global oilfield services with several strategic benefits. A Houston based global oil services champion, manufacturing and exporting technologies and creating jobs and serving customers around the globe, strong positions in key business lines, a fully integrated product and services platform, increased capabilities in the unconventional deepwater and mature asset fields, substantial and improved growth opportunities and continued high returns on capital. Let me review the financial benefits of the transaction.
Together, we expect to achieve annual pre tax cost synergies of nearly $2,000,000,000 and Mark will go over those in a few minutes. But more importantly, we expect the acquisition to be accretive to cash flow by the end of year 1 after close and accretive to earnings per share by the end of year 2, which means we can start getting cash back to you, our shareholders quickly. Again, Mark will take you through the details on that. And finally, the combined company will be well positioned for continued superior growth, margins and returns, delivering an unsurpassed breadth and depth of products and services. In short, from both a financial and strategic perspective, we are confident that this transaction is in the best interest of our shareholders, our customers, our employees and all stakeholders of both companies.
Go to the next slide, where I want to quickly address how Baker Hughes will help us achieve our business goals and accelerate the execution of our key strategies in unconventionals, deepwater and mature fields. The combination of our 2 companies' products and service capabilities will allow us to deliver unparalleled solutions to our customers. In North America, we've demonstrated that our efficiency model is working and our customers see the results in a lower cost per barrel. This transaction will allow us to apply our highly efficient logistics network to an even larger franchise and our combined subsurface insight will provide our customers with best in class unconventional solutions. In Deepwater, the complementary technologies for reducing reservoir uncertainty and increasing reliability put us in a combined position to integrate and help our clients be more successful in the challenging deepwater environment.
And finally, the complete mature field offering of the combined company will create value for our customers by finding bypass pay zones and optimizing production over the life of the field. The combined entity will also be well positioned for continued integrated asset management growth. And as Mark will tell you, this transaction will create a larger platform to achieve superior growth, generate improved margins and returns and give us the ability to distribute more cash to our shareholders. And beyond the compelling financial and strategic logic of this combination, I'm really most excited about bringing together some of the best talent in the industry. And I am confident that uniting our great people will be a competitive advantage for our combined organization.
Between growth and attrition, Halliburton alone is looking to add 21,000 people in 2014. Given that we will be able to combine the best talent from both organizations upon closing the deal, I look forward to welcoming the outstanding employees of Baker Hughes to the Halliburton family. Now I'm going to turn the call over to Martin Craighead to discuss why this transaction is a win for Baker Hughes. Martin?
Thanks, Dave, and good morning, everyone. After conducting a thoughtful and thorough evaluation, our Board determined that this transaction is a win for our stockholders, employees and our customers. We believe this is an especially compelling transaction for our stockholders and will give them the opportunity to participate in the significant upside potential of the combined company. Additionally, we believe the combination will yield substantial efficiencies of scale and geographic scope. Baker Hughes shareholders, as owners of approximately 36% of the combined company, will benefit as synergies are realized on full integration, which we expect will be achieved by the end of the 2nd year after the close of the transaction.
These two organizations share similar core values, a heritage of innovation and a dedication to customer service. Combined, they should be even more capable of helping customers to safely produce affordable energy and improve people's lives. And for the employees of both companies, this combination translates into the potential for more career opportunities and even greater personal and professional fulfillment. I want to thank the hardworking employees of Baker Hughes for making Baker Hughes a go to company for the world's most challenging energy projects around the world. It is because of their efforts that this exciting combination has been made possible.
In Halliburton, we have found a partner that has great respect for our company, recognizes the value of Baker Hughes' employees and shares our confidence about forward with this combination is because it will allow us to deliver an even broader range of products and services to meet customers' increasingly complex oilfield challenges. I look forward to working closely with my colleagues at Halliburton to ensure a smooth process to closing. Now I'll turn the
call back over to Dave. Dave? Thank you, Martin. I want to emphasize that Halliburton with the full support of its executive leadership and Board is committed to completing this transaction. We have assembled an outstanding team of financial, legal and proxy advisors and we believe that this transaction is very achievable from a regulatory standpoint.
And I want to make it clear that I am personally committed to remaining as CEO and overseeing the turn the call over to Mark to go into some more of the financial benefits and details
of the transaction. Mark, it's all yours. Thanks, Dave, and good morning, everyone. Let me first review the key terms of the transaction. Under the agreement, Halliburton will acquire all outstanding shares of Baker Hughes in a cash and stock transaction consisting of a fixed exchange ratio of 1.12 shares, plus $19 in cash for each Baker Hughes share.
The value of the merger consideration as of November 12, 2014 represents 8.1 times current consensus 20 14 EBITDA estimates and 7.2 times current consensus 2015 EBITDA estimates. Baker Hughes shareholders are essentially exchanging a share of Baker Hughes for a share in an even stronger better positioned combined company plus $19 per share in cash. Following the close of the transaction, Baker Hughes shareholders will loan approximately 36% of the pro form a entity. Halliburton intends to finance the cash portion of the acquisition through a combination of cash on hand and fully committed debt financing. The transaction is also subject to approval by both company stockholders, regulatory approvals and customary closing conditions.
Our goal is to complete the transaction in the second half of twenty fifteen. We are confident this is the right time to execute. Our strategies are working. Our underlying business is strong and we have the right team in place to this happen. The combination of our 2 companies' products and services will result in a stronger more diverse organization delivering an unsurpassed depth and breadth of services to our customers on a global basis.
The combined company will have annual revenue of approximately $50,000,000,000 with significant synergistic opportunities. We've got an actionable plan to capture nearly $2,000,000,000 in annualized cost savings by the end of the 2nd year following closing. We spent a lot of time looking at this and we expect the savings will be achieved by improving our operations in North America, reducing expenses in other regions around the world and by eliminating overhead and other redundant fixed costs. We expect the transaction to be accretive to Halliburton cash flow by the end of the 1st year after closing and also to earnings per share by the end of the 2nd year after closing, even factoring in potential divestitures. We structured the consideration to ensure that the combined company will have a strong balance sheet and a strong investment grade credit profile.
Is also consistent with our commitment to best in class capital returns for our shareholders. We recently announced plans to increase the Halliburton dividend by 20%, essentially doubling our quarterly dividend rate over the last 2 years. We've returned $7,000,000,000 in cash from dividends and share repurchases since 2010 and remain focused on achieving cash returns of 35% of operating cash flows to shareholders going forward. We contemplated a transaction of this size when the Board made these decisions. These actions reflect our confidence in the strength of our long term business outlook, our commitment to shareholder distributions and our focus on delivering best in class returns.
The combined company's strong cash flow from operations and solid capital structure will only enhance our flexibility to continue this rate of capital return post closing. This combination is truly greater than the sum of its parts. We believe the combined company should be rewarded with a higher trading multiple than either Halliburton or Baker Hughes currently enjoys and that investors should consider the combined company a must own energy stock. Now I'd like to discuss the nearly $2,000,000,000 in annual cost synergies. The opportunities lie in 6 primary areas.
The largest of these are operational improvements and personnel reorganization both in North America and internationally. And particularly, we believe that applying Halliburton's North America efficiency programs to Baker Hughes products and services will result in reduced cost and generate a meaningful increase in margins. Also in real estate, we see a substantial overlap. The other opportunities we've identified include significant savings potential in corporate cost, R and D optimization and other administrative and organizational efficiencies. Most importantly, given the significant equity component of the consideration, the savings to be realized will benefit both Baker Hughes and Halliburton shareholders who choose to hold shares in the combined company.
As you all know, our efficiency programs in North America are helping Halliburton realize savings in operating time, maintenance and administration. Since the launch of Frac of the Future and Battle Red, these programs along with our focus on improved logistics and service efficiency have been driving significant shareholder returns. And the benefits of these programs will be further realized when applying to the Baker Hughes asset base. This alone represents an $800,000,000 annual opportunity. Baker Hughes and Halliburton's operations have significant geographic overlap, which creates compelling cost savings opportunity.
We would expect to realize approximately $1,000,000,000 of associated savings on fixed cost. Most of these savings will be realized in real estate, logistics, security, support services, personnel utilization, management and public company cost. Now turning to slide 12, we have dedicated considerable time and resources analyzing the combination and are working with Sean Bolland at Baker Botts, a highly regarded antitrust expert with unmatched expertise in the oilfield services industry. Sean has worked closely with Baker Hughes' esteemed antitrust expert Molly Bose of WilmerHale. We have carefully evaluated the likely divestitures needed to obtain regulatory approval and are willing to divest assets if required at the appropriate time.
From a financial return standpoint, we do not believe that potential divestitures will materially diminish the financial benefits of the transaction nor prevent the combined company from achieving its strategic goals. We've identified a number of potential buyers that we believe will be very interested in the businesses that may need to be divested and expect that those businesses should all obtain excellent prices and expedited sales. We're confident that is achievable from a regulatory standpoint. Now I'd like to turn the call back over to Dave to close. Dave?
Thank you, Mark. In closing, we are extremely excited about the Baker Hughes transaction and we are confident that this combination presents a compelling opportunity for shareholders of both companies to achieve extraordinary short and long term returns. As we've noted this morning, putting our companies together will create an industry leader with enhanced scale a full range of innovative products and solutions for our customers. In addition, the combined company will be very well positioned financially, poised to accelerate growth, deliver outstanding margin improvement and drive shareholder returns. Following the closing, which we expect in the second half of twenty fifteen, we are confident in our ability to achieve nearly 2,000,000,000 dollars in annualized cost savings, such that the transaction will be accretive to cash flow in the 1st year and to EPS by the end of the second year.
Before we take questions, I would like to thank everyone both the Halliburton and Baker Hughes teams and both Board of Directors for their hard work and vision for our future together that we've expressed here today. I also want to note that we appreciate the hard work and dedication of our teammates at Halliburton. We also want to congratulate the employees of Baker Hughes for building such a highly regarded and successful organization. I look forward to meeting as many Baker Hughes employees as possible in the weeks months ahead and welcoming you to the Halliburton family when the transaction closes next year. We will be assembling integration teams and we'll work closely with Baker Hughes to facilitate a seamless integration.
Thank you all for joining us on the call today. We look forward to realizing the strategic and financial benefits inherent in this combination to create greater value for our company shareholders, customers, employees and all of our stakeholders. So with that, let's go ahead and open it
up for questions. Thank you. Our first question is from James West of Evercore ISI. You may begin.
Hey, good morning guys.
Hey, James. Good morning.
And Dave or Mark, congratulations. This is a great transaction and makes complete sense to me.
Well, good. It makes a lot of sense, Doug.
I'm sure it does. Two quick questions. 1 on the North American margins and the opportunity set here. How quickly do you guys envision that you could raise the Baker margin profile up to the Halliburton standard?
Well, obviously, it will we'll have to get to closing before we can take
it on.
But we're going to be putting on integration teams quite rapidly particular one of the areas that we see is in the particular one of the areas that we see is in the area of hydraulic fracturing, the ability to combine the logistics network, our field camp operations in a way that we're attacking each basin on a combined basis that streams lines the way that we go to market. And it just seems like naturally when you put the equipment, we've got good equipment on both sides. We've got great people on both sides. The processes are very similar. When we combine this together, it's going to make a lot of sense.
Good, good, good to hear. And just a follow-up for me. In terms of employee retention, there's going to be a little bit of a period here of uncertainty for your employees. And then of course, with the closing of the transaction, probably some uncertainty there.
When do
you think you figure out all the teams, you let everybody know who's going to be there going forward and kind of how everything is going to work and so you don't have any senior key people get picked off by your competitors?
Well, I think James good question. Remember both companies are growing and growing companies always create opportunities for good talent. And we've got a lot of talent in both of these organization. And we're going to use the transition effort to find a way to combine that best talent in the best way possible. And as I indicated in my remarks, we alone are looking to add about 21,000 people this year.
So certainly as we go through the transition, we'll have a process that identifies everyone. But I think at the end of the day, I think as our employees on both sides look at this combination, this is a place they're going to want to work.
Thank you. Our next question is from Bill Herbert of Simmons and Company. You may begin.
Hi, Bill. Thank you. Congratulations Dave to you and your team and your Board. First question I have for you, we talked about the cost synergies. Can you talk a little
bit about
the complementarity that you mentioned and the synergies on that front? And specifically, what were what are the PSL attractions that Baker has that are symbiotic with you and additive with regard to your portfolio? And similar question with regard to geographic presence, Were they strong? Where you would like to have been strong? And now you will be strong in combination with Baker Hughes?
Well, multifaceted question, Bill. But let me sort of approach it from a product line. Clearly, a couple of the product lines that Baker
technology we have is
very complementary to each the technology we have is very complementary to each other. In terms of footprint, as we've said
scope and scale, necessary to compete on
these larger areas. Get the scope and scale necessary to compete on these larger contracts. And we spent a lot of money on building out our infrastructure in the Eastern Hemisphere over the past several years. And I think combining these 2 great organizations and their capabilities in the Eastern Hemisphere will give us that economy of scale that will actually allow us to compete more effectively against the competition, but also give a better product and a more wider array of products to our customer base.
Okay. And then secondly, from an antitrust standpoint, you mentioned a high level of confidence with regard to getting this deal done. I'm just curious as to whether you could speak to kind of the global deepwater markets going from kind of an oligopoly to maybe even a more rational competitive framework and the challenges on that front as well as opportunities in getting this deal closed?
Well, I think Bill, obviously, as we've said, we are very well advised from an antitrust standpoint. And we are just now that we've announced the deal, we'll start working with the regulatory authorities. But at the end of the day, we wouldn't have done this deal if we didn't believe it was achievable from a regulatory standpoint. So let's just let the process work.
Okay. Thank you.
Our next question is from Wacker Syed of Goldman Sachs. You may begin.
Thank you. With this transaction, would your appetite for IPM projects and the scale of that, would that change? And secondly, any thoughts on capital spending as we project out a couple of years?
Well, I think with respect to the IPM projects, this gives us, as I indicated in my remarks, even a greater scope and ability to do that. Because if you think about mature fields, a lot of the product lines that ESPs, production chemicals are really critical to having the end to end that you really need in IPM. So I think it really takes what was a very good position that Halliburton had and very much adds to it. And again, at the end of the day, this thing will really benefit our customer base. And in the IPM area, I think is one area where we really are going to move ahead in terms of being able to assist our customers.
And I'll turn the capital question over to Mark.
Hi, Ricard. Obviously, at this point in time, it's difficult to project out several years as to what the capital requirements of the business might be. But I can tell you that our fundamental belief is that the combined organization is going to have a lot more opportunities. And you know how we are in terms of our capital discipline, living within cash flows and the our aspirational goal to distribute at least 35 of our operating cash flow back to shareholders. And so as you apply those metrics, we think this organization as it becomes cash flow accretive is going to enhance our opportunity to do that and we'll still be able to hit all the opportunities that are out there.
And we think on a combined basis, it's going to be much more significant than they've ever been.
Okay. Great. Thank you very much.
Our next question is from Jud Bailey of Wells Fargo Securities. You may begin.
Thank you. Good morning. A question on the accretion on EPS. I just want to make sure I understand. So if a deal were to close by say late 20 15, you're suggesting earnings accretion in year 2.
So that mean we see the first real earnings accretion by 2017? Do I have that right?
Yes. I think let's be clear. We said that if it closes, let's say, in late 2015, we would expect to be cash flow accretive the next year and EPS accretive the year after that. So pretty good outcome on a transaction this size.
Sure. And I may have missed it, I apologize. Mark, did you say by year 2, how do we think about the $2,000,000,000 in synergies in terms of timing on integrating those? And then also, how dependent is that on what the potential divestitures are? In other words, if you have to sell more than you anticipate, how much would it impact that number?
Could you talk about that?
I didn't talk about that. I think that as we look forward, we're going to try to have an integration plan in place at the time that we get to closing, so that we can begin executing on that plan right away. There are going to be certain things that we can move on quicker than others. There will be things like system integration and real estate rationalization and things like that that might take a little bit of time. But as we factor in sort of a realistic estimate about how quickly those savings can come, we can see a path very quickly to both cash flow and then earnings accretion following that in the next couple of years.
But it probably I mean realistically the integration will take a number of years as we bring these businesses together. So that we think that's just the tip of the iceberg in terms of where we go with this. And so I think as you think about the breakage and what might be involved there, we'll have we'll know what that's going to be at the time that we start the process, right? The regulators will likely need us to have a plan of what we're going to do with those businesses and executing on that plan at the time of closing. So we'll be able to deal with that.
That's going to give us a lot of cash to do something with. And right now I think that some of that will be coming back to shareholders.
Thank you. Our next question is from Brad Handler of Jefferies. You may begin.
Thanks. Good morning and my congratulations as
well. I guess I just
want to follow-up on the same question though if I may. Is it dynamic?
Do you expect if you were to
have to sell the $7,500,000,000 that you'd naturally expect less in synergies?
No. I mean, in fact, as we estimate synergies, we're the number that we've laid out there is a conservative estimate. We think that there's more synergies and these are all pre tax synergies. We haven't even talked about the potential tax synergies that may be there by combining the businesses as well. And all that layers in on top.
So what we're trying to do is say based on our estimate of what the breakage will likely be, this is where we think we will be able to achieve on the synergy side.
You actually Mark, you anticipated my next question. Can you comment on what tax may afford you in any detail?
Obviously, we have a difference in the tax rates of the different entities. At this point, we're going to need to be able to walk through and see how our businesses are laid out to be able to achieve that, right? The tax rate that we have at Halliburton has been achieved through strategic reorganization of manufacturing and operations and logistics and things. I think that the opportunity exists to do that as well as we integrate these businesses and so we can capture that tax benefit on a combined basis.
You. Our next question is from Ole Slore of Morgan Stanley. You may begin.
Yeah. Again, congratulations to both teams. It's actually rare that you see something that makes this much sense actually happen.
I think
that's a high compliment
Oli. And congratulations to Martin too by the way. The North America seems to be the most obvious mismatch in terms of margins. We can also you have the scale of Schlumberger internationally, but still combining the two businesses and benefiting from that scale to close the margin gap, I would imagine is going to be a long haul. But North America, again, back to that, that seems to be the area where the opportunity set is the greatest for higher efficiencies on a combined entity.
Could you talk a little bit just about from a technology standpoint, whether it's the size or the frac pumps that Baker has versus what you have at Halliburton or your logistics. Explain us what exactly can you do with a little bit more detail to close that margin gap? And where is it? I would imagine that the pressure pumping part of Baker is where it's going to be the lowest hanging fruit from your perspective?
I think Oli it's actually all across the spectrum in North America. I think that one is just expanding on the logistical foot print that we have in place and just making the delivery system more efficient is 1. And obviously, because we have a good leadership position in pressure pumping and frac in particular, I think putting those organizations together and achieving those benefits, really we have essentially a tried and true plan on that. I think the other area that we really do see benefits on though is the product lines that Baker is bringing to the table for North America. If you think about the shale oil developments, for instance, a lot of demand for ESPs, a lot of demand for lift, a lot of demand for production chemicals.
And I think putting together a product offering to our customer that's compelling from a price standpoint is something that should help us drive a better integrated offering and a more price advantaged offering for our customers. And then I think you just take the sort of duplicate footprints that we have. And in many cases, in many basins, we're just sitting side by side with each other And basically figuring out how we capture and identify the best people in those locations, put them together, it leads us to the high confidence we have that in North America in particular, what we're going to have is a great complementary business. Anyways, congratulations and I'll hand it back.
Our next question is from Scott Gruber of Citi. You may begin.
Yes. Good morning and congrats again to all.
Thanks, Scott.
I may have missed this earlier, but how do the forecast synergies split between cost and revenues?
All of the synergies that we've identified are cost related synergies. They're not revenue. So the revenue synergies that are out there are on top of this.
And can you speak to the revenue synergy potential in North America? My back of the envelope math points to Halliburton achieving something on the order of 35% higher asset turns in frac. So is that a how big of an opportunity is that? When can it be achieved? How does that figure into your thinking?
At this point in time, the honest answer is it hasn't necessarily calculated the thinking. But clearly it's an opportunity, right? I mean that's part of the synergy I think of improving margins as we think about that is going to come probably from efficiency. Figuring how do we get more turns on the assets that we have, how do we reduce maintenance and get pumps back in the field and how do we all of those kind of things have both the revenue and or a cost synergy, but effectively that marginal improvement that we're identifying for North America has components of both and we're going to try to go after it in earnest.
Scott, let me jump in here. This is Martin. Besides the obvious efficiency gains as we lay our horsepower on the framework that Halliburton has been able to establish, which is, as Mark highlighted, there's going to be a tremendous upside for our shareholders. There's also, as Dave highlighted, though, an amazing amount of infill, if you will, amongst the different product lines. There is the obvious move towards increasing attention towards efficient lift as well as the production chemical side, I think, which is obvious to everybody.
But additionally, there's some amazing complementary products within the big lines within completions, whether it's sliding sleeve, whether it's dissolving plugs, as well as in the directional drilling and measurement while drilling in LWD areas, high angle build instrumentation and so forth. So I think it's the more and more you dig into this besides the obvious big product line complements, as you dig into the respective product lines, there's a lot of great complementary bricks, if you will, to build an incredibly strong North American institution.
Our next question is from Rob McKenzie of Iberia Capital. You may begin.
Thanks guys. I guess my question is from the customer side. How have your have you had any preliminary discussions with customers? And how do you expect them to react to this? Because I can see a situation where in some cases they may welcome a stronger competitor in a market where the one is lacking.
And in some cases I can see them perhaps objecting to this. Can you share your thoughts there?
Yes. I think look at the strategic rationale for this thing. It leverages our complementary strengths and it combines a well positioned strong company from a balance sheet standpoint. And our customers always will manage to develop competition among the services industry. What we have by being able to combine some of these product lines together is an offering for our customers that help drive their costs down, help drive their cost per BOE down.
So at the end of the day, we think this is a great outcome for our customers. And we think that as they understand the benefits of this, they will come to realize that. And it's certainly an outreach to our customers is something that we will start today. But I think at the end of the day, if we can demonstrate a way to lower their costs, they're going to love this deal. And I'm confident we can do that.
Great. Thank you. I'll turn it back.
Our next question is from Chuck Minervino of Susquehanna. You may begin.
Hi, good morning and congratulations on the transaction. Just another question just along those same lines from the customer perspective. I was just curious if you can help us out. I don't know how all of these international contracts are structured, but are there change of control provisions in there that opens the door to them potentially having the opportunity to renegotiate contracts with you? Particularly, I'm wondering what some of these NOCs are I'm sure you've looked at that.
If you can provide any color on that
it would
be helpful. I think sort of first pass looking at it, I don't think that there is any issue that we'll have there. Clearly, we will have a dialogue with our customers. We will ensure that they understand why we did this, the complementary nature of the transaction and why at the end of the day they're going to get a stronger service company out there. And at the end of the day, as I said earlier, they'll like this deal and they'll like what they see from the combination.
And then just a second question. When you're looking at these divestitures or the possible divestitures, have you looked at all or can you help us understand how you think some of these markets will be defined? Will they be defined on maybe a product perspective globally or a product perspective geographically? Is there anything you can help us with there?
It'll be a little bit of both. But one of the things to understand is that each of our product lines while we tend to define them very in a large way like completions, Those product lines have many, many sub product lines and services that are associated with it. And as we go forward, they're going to be looked at on a sub PSL basis, almost even to the product or to the manufacturing location. And so it's going be a long process. There'll be a lot of detail involved with that, but that's what gives us confidence that this thing is going to be very achievable from a regulatory standpoint.
Thank you. Our next question is from Jim Crandall of Cowen. You may begin.
Good morning. I think it's kind of obvious this is a great deal, but the key is divestitures. You have a $3,500,000,000 breakup fee even though undoubtedly you're getting the best antitrust advice you could possibly have. What if you're looking not only at the businesses you think there's at least a chance that you will have to divest like wireline, LWD, directional bits cementing. But the way the Justice Department looks at the completion business is it treats that as a whole business.
And it would seem there comes a point maybe it's completions, maybe it's you have to divest part of your STEM business that the deal does make sense and you're out there with a $3,500,000,000 breakup fee. I don't know, could you assess the chances do you think of the completions business or the part of the simulation business not being able to meet antitrust scrutiny?
Hey, Jim, listen, as I said earlier, we have the best antitrust counsel available on this. And we clearly would not have done this deal if we didn't believe it was achievable from a regulatory standpoint. In fact, that's why the reverse breakup fee is there and at the size it is because we are absolutely confident that we're going to get this thing done. And as I said, we're well advised. We will be starting to meet with the DOJ as of this morning.
And I would say let's just let the process work its way out.
Okay. Thank you.
Thank you. Our next question is from Michael Lamott of Guggenheim. You may begin.
Thanks. And let me offer my congratulations as well. Maybe a question on the cash stock split and how you all arrived at the ratio. I can see the competing interests of accretion dilution, the amount of leverage you're willing to assume going into the softer market, obviously allowing Baker Hughes shareholders to keep some equity to participate in the upside. But can you talk about how the ratio has arrived at?
I think that you're absolutely right. Feeling that we were coming into a declining market having a higher percentage of equity in the deal made sense for the Baker Hughes shareholders to give them some upside. Clearly, the exchange ratio will float until the time that we reach I mean, the exchange ratio won't flow, but the stock will float. And so at the time that we close the deal, they're going to have a great company to start with. One of the things that we see going forward, right, not knowing exactly how the regulatory decisions will be made, the proceeds from the breakage will likely be used to buy back shares in coming years.
And so we'll be able to adjust buybacks and get our final financing in a way that we'll still have a very strong investment grade credit profile, but just don't expect that this is where we're going to end up on a debt to equity ratio when the smoke clears.
Okay. Thanks, Mark. And then maybe a follow-up with you on the CapEx side. With rationalization really being the focus of 2015, 2016 obviously capital requirements are going to be lower. Can you give us a sense as where maintenance CapEx is today?
And then secondly looking at a frac fleet that is not as homogeneous as what Halliburton is used to working with in the past, what that might mean from a maintenance CapEx standpoint and particularly as you're looking to reduce maintenance and increase efficiency?
For us at least on the Halliburton side, we expense maintenance costs. So we don't always think of our CapEx as having a true maintenance component. There are probably always in our manufacturing processes 10% to 15% of our manufacturing build is associated with pump replacements things like that. But that's just on the frac side. We're not really prepared today to talk about what all of our 2015 capital budget numbers are.
We'll be talking about that as we go forward. But just sort of reiterate that we're like every other service company and I know this is true for Baker Hughes. As we go into 2015, we're maintaining a high degree of flexibility. We're making plans that look at making sure that we're managing our cost structure very, very, very well and we will flex to what we see the market will be. And we're going to listen to customers over the next few months and react accordingly.
Thank you. I would now like to turn the call back over to Kelly Youngblood for closing comments.
Thank you, Shannon. On behalf of the Halliburton and Baker Hughes management teams, I just want to thank everyone for your participation today. And Shannon with that you can close out the call.
Ladies and gentlemen, this concludes today's conference.