KLX Energy Services (KLXE) and Quintana Energy Services (QES) announced a merger on Sunday. While merging makes some strategic sense, it doesn't change the central underlying problem that these businesses lose money in a shrinking industry. Even though merging will save the combined businesses some overhead, for the reasons described below I don't believe the new, combined business will earn money and I would be interested in shorting the stock under certain circumstances.
1. Industry Headwinds cast a shadow over the merger
It would be an understatement to say that