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Investors Question About-Face by Weatherford

Weatherford plc, the fourth largest oilfield services company in the world and one of the biggest in North America, has seen its fortunes fall sharply this week after canceling a bid to raise $1 billion only hours after it was announced.

The stock plunged on Monday by 10%, followed by a drop of 17% on Tuesday. On Wednesday, shares were trending 4.8% lower at $8.86.

"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 late Monday after pulling plans announced earlier in the day. The Swiss operator "continues on its resolute course of focusing on its core businesses and the efficiency of its operations."

Weatherford was planning to raise capital through stock sales and convertible notes, with the cash expected to help in a bid for assets up for sale by Halliburton Co. Halliburton has to sell some of its assets to gain U.S. approval of its merger with Baker Hughes Inc.

The decision to abort the capital raise plans is a blow to management credibility, said analysts with Tudor, Pickering, Holt & Co. (TPH). The stock market "took none too kindly" to the operator's apparent about-face regarding "not needing to notably augment its service/product portfolio via acquisitions; and its stated plans to pay down debt over next couple years (primarily via free cash flow)."

While the company's recovery should be underway over the next year or so, "frankly, it'll take a lot longer" for credibility to recover, said TPH.

Other analysts also questioned the reversal.

"On the one hand, we believe investors will welcome Weatherford's discipline to walk away from the deal due to price, while others will be more skeptical after the company's change in tone" regarding mergers and acquisitions made only a few weeks ago, said Wells Fargo analysts.

Simmons & Co. also weighed in, noting that it would be reasonable to conclude that the company would not be chasing deals of "sufficient scale requiring significant financing."

Before its plans were launched early this week, the operator was on course to lower debt by selling some noncore businesses and improving its efficiencies (see Shale Daily,July 24). CEO Bernard Duroc-Danner told investors during a conference call two months ago that he was content with Weatherford's business offerings and wasn't planning to expand.

"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, it's very difficult for us."

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