Halliburton: good things come to those who wait Apparently, Halliburton's $34.6bn acquisition of Baker Hughes was a blundered - and costly - deal by the oil services company. The business press (the FT included) have been brutal in their assessment. My colleagues on Lex, with characteristic subtlety, rebuked Halliburton for creating a bad acquirer template. Others simply said the price, which represented a 54 per cent premium, was too high. The smack-down seemed to top out on Wednesday, when the Wall Street Journal declared Halliburton's as the worst received deal of the year. And how do we know it was so bad? Simple: we listened to the market. Halliburton's shares crashed 12 per cent within two days of the deal being announced. In other words, investors greeted the news by devaluing Halliburton's market capitalisation by $5.5bn. It is a fall that, according to Dealogic, represents the single worst reaction by the market to any deal this year. No other deal has caused shares to fall by more than single digits over the same pre- and post- announcement time frame. So Halliburton must really have messed up? I have written before about the perils of using short-term data to extrapolate reliable information about M&A markets. And I hasten to add a mea culpa: I am myself guilty of having committed this crime on occasion. But using it to divine meaning about the merits, or lack thereof, of individual deals is a lost cause. To better explain the problem, it's worth looking at how Dealogic reached its conclusion that led to this week's deal being dubbed the worst of 2014. Halliburton's shares closed on Friday 14th November at $55.08. The acquisition of Baker Hughes was announced before the markets opened on Monday 17th. By the end of trading on Tuesday 18th, Halliburton's shares were valued at $48.54, or about 12 per cent lower than where they started on Friday night. And that's exactly the time frame Dealogic used as a catchall proxy for investor sentiment about the deal. Now let's transcend the Dealogic time frame and roll back 24½ hours from Friday's close to the last 30 minutes of trading on Thursday 13th. At 15.30, give or take a few seconds, the WSJ published a story saying Halliburton was in talks to buy Baker Hughes. There was no detail about what price Halliburton might pay. Halliburton's shares, then at $50.80, jumped. At one point during the next few minutes, they traded as high $58 (a gain of little over 14 per cent) before falling back slightly. Even so, most of the gains held and by the time the market closed on Friday - the start of Dealogic's reaction window - Halliburton's shares were at $55.08, or 8.4 per cent higher than the undisturbed price of just before 3:30pm on Thursday. So Halliburton surged on news that it might buy Baker Hughes. It then fell when the market realised it could do so on the cheap. Both of these are entirely logical reactions, and both need to be factored in to give even the most basic reading of market sentiment over a short time frame before and after the deal is announced. Taking into account all that happened between the first news of the deal on Thursday and the end of Dealogic's reaction window on Tuesday, the shares fell just 4.4 per cent - not enough to make the top 10 worst deals of the year list. The analyst community, slightly slower than the press to pass judgment, have been fairly upbeat, pointing out that the high premium is more a function of Baker Hughes shares having fallen 17 per cent in the five weeks since Halliburton first approached it, rather than reckless overpayment by the suitor. There is also the not unimportant point that 76 per cent of the consideration is being paid for with Halliburton's shares, meaning the more Halliburton's shares fall, the cheaper the deal becomes. Returning to the market reaction, though. Using my own custom-made reaction window thing, I found that at 3:30pm on Thursday 20th November, exactly one week after news of the deal broke, Halliburton's shares were at $49.2, or down 3 per cent. By lunchtime on Friday, they were back at $50.80 - right where they started. Not quite rapturous applauds, but very far indeed from the kind of reception you might expect for the worst deal of the year.