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Weatherford Hires Halliburton CFO McCollum; Shares Surge PDF Print E-mail

Image Weatherford International (NYSE:WFT) announced the hiring of former Halliburton (NYSE:HAL) CFO, Mark McCollum, as its new CEO. Shares surged 10% Monday after hours on the news. rishna Shivram will be departing as interim CEO effective immediately, and Christoph Bausch, Weatherford's Executive Vice President and CFO, will serve as acting CEO until McCollum takes the helm. The euphoria over the new hire was similar to the euphoria longs felt after former CEO, Bernard Duroc-Danner, suddenly departed in November; WFT surged over 30% on that news. Duroc-Danner's exit came weeks after capital-starved Weatherford had been fined $140 million by the SEC for accounting fraud.

Will McCollum Attract New Investors To Repay Old Ones?

The question remains, "What will be different with McCollum at the helm?" Under Duroc-Danner the company developed a penchant for "robbing Peter in order to pay Paul." Weatherford raised over $3 billion in capital in the first half of 2016, yet it was still hemorrhaging cash. The company raised nearly $1 billion under Shivram via a mix of debt and equity securities. Last month Weatherford filed a $2.5 billion shelf registration for warrants ($543 million) and other securities ($2 billion). The warrants have an exercise price of $6.43 per share, and 84.5 million shares are issuable. After-hours WFT closed at $6.50; if the share price holds on Tuesday then the warrants would be in the money, and could trigger another equity raise.

If the warrants are exercised, it would increase the company's share count from 982.8 million to 1.067 billion. I estimate such an event would be dilutive by about 8%. It would increase cash on hand to over $1.6 billion amid $7.6 billion in debt at 30x EBITDA. This is a long-winded way of saying the hiring of McCollum, who could potentially drive Weatherford to new heights, is good thing. However, if the stock remains above $6.43 per share going forward, it could trigger another dilutive event.

Takeaway

Renewed drilling activity in North America has provided a mini-rebound for Weatherford and other oil service firms. The increased drilling activity could potentially mute future benefits from OPEC's supply cut. Secondly, it remains to be seen how the stock will react to any potential new share issuance. I suspect the increased share count keep a lid on the stock. Investors should continue to avoid WFT.

 

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