Halliburton: Internal Memo And Sources Warn Up To 20,000 Layoffs Coming
Sep. 24, 2015 11:52 AM ET | 26 comments | About: Halliburton Company (HAL), Includes: BHI, GE, WFT
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
Two days ago, my network provided me access to an internal Halliburton memo detailing layoffs coming over the next two weeks.
I've since come to find out that the layoffs could number into the 20,000 range and that Houston area layoffs could be starting as early as today.
Because the triggering event for these layoffs is still unknown, but could be stemming from potentially concerning developments, I recommend a hold or an avoid of Halliburton shares.
Two days ago, my oil and natural gas contact network allowed me access to an internal Halliburton (NYSE:HAL) document that was sent out by Halliburton President Jeff Miller to the company-wide employee base.
This internal memo summarized the commodity pricing downturn driven structural pressures that the company is under as well as cost reduction measures HAL would take to help remedy some of the structural stress pressing down on its share price. Of course, Halliburton is also in the midst of acquiring Baker Hughes (NYSE:BHI), which has provided its own equity pressure addition in the form of short selling coming from parties doubting the success of the transaction, as well as those hedging the merger spread.
Since I published this memo for public viewing, and it was immediately sent out to my Seeking Alpha follower base via Seeking Alpha's new contributor messaging function, Suzanne Edwards of the Houston Business Journal has confirmed with a Halliburton spokesperson that the memo is accurate and was sent out by Miller.
The spokesperson, from what I gather from Edwards' reporting, did not confirm or deny the memo-stated "two week" window before layoffs would start. That said, I've since come to find out from members of my oil and natural gas network that Halliburton has blocked off time today (September 24, 2015) for "HR people" to begin "addressing" certain working verticals within the Houston office. From my understanding, these "meetings" are not limited to any single division within the local area. I've also come to find out that at least some international layoffs have taken place over the last two days (since Monday, September 22, 2015). A very credible source of mine has told me Halliburton could let go up to 20,000 employees on a global basis when all cuts have been finalized. So, while the memo did state that workers being cut would receive notification over the next "two weeks," it appears that the cutting has already started. Again, this closely follows Williston Herald confirmed layoffs in North Dakota from just a few days ago.
I continue to view this development as multi-directional, but a development that is bullish under only a single circumstance, even saying that is asking for analysts to lean hard into the idea that maintaining the status quo is bullish. Only under the assumption that these cuts are being made from strictly a defensive posturing to the probability of a "lower for longer" oil pricing and energy activity environment could this development be viewed as anything but highly concerning. This is, it should be noted, something that Halliburton had stated it might consider as a way to relieve its operating structure and equity pricing of stress. Both Miller and SVP of Finance/acting-CFO Christian Garcia were open about this in addressing the analyst community at the Barclays CEO Energy-Power Conference.
Now, if these cuts are being made either in reaction to the recently canceled Weatherford (NYSE:WFT) attempt to raise ~$1 billion in funding - presumably Weatherford planned to bid for Halliburton assets that must be divested to meet a Baker Hughes merger mandate set in place by the Department of Justice, or in reaction to deteriorated visibility into the Baker Hughes merger in general - something that a Halliburton spokesperson adamantly denied to Suzanne Edwards of the Houston Business Journal; this development should be viewed as highly concerning. Analysis of this development should also include the realization that Weatherford being removed as an asset off-take candidate might have triggered reduced Baker Hughes merger visibility in that this would leave only one at least obvious off-take partner to be negotiated with - General Electric (NYSE:GE).
Remember, should Halliburton not be able to close this transaction, the company is on the hook for a $3.5 billion reverse termination fee.
In that the cause of these layoffs to come can't be addressed with certainty, and that the company has yet to officially comment, I have to recommend an immediate-term avoid of Halliburton's equity. I'll continue to update readers and followers as new information is discovered.
Good luck everybody.