Halliburton/Baker Hughes Call Off Merger
US oil field services companies Halliburton and Baker Hughes have abandoned their planned mega merger, originally valued at $34bn, the US Department of Justice said in a press release on May 1.
The merger of the world's largest and third-largest oil field services companies was defensive, as the oil price crash of 2014 led the upstream sector to cut to hundreds of billions of dollars from their upstream spending plans and to renegotiate contract prices with the service companies, or to abandon the agreements altogether.
But the department felt the merger went too far, and filed a suit April 6, alleging that the merger would unlawfully eliminate significant head-to-head competition between the companies in at least 23 markets crucial to the exploration and production of oil and natural gas in the US. The merger also had encountered opposition from regulators in Europe.
“The companies’ decision to abandon this transaction – which would have left many oilfield service markets in the hands of a duopoly – is a victory for the US economy and for all Americans,” Attorney General Loretta E. Lynch said. “This case serves as a stark reminder that no merger is too big or too complex to be challenged, and that the hardworking men and women of the department’s Antitrust Division stand ready, willing and able to vigorously enforce the nation’s antitrust laws when companies propose deals that would enhance shareholder value at the expense of consumer interests. I am proud of the lawyers, economists, and others at the Justice Department whose work on this multi-year investigation and litigation made this result possible.”
“Very few things are as important to our economy as oil and gas,” said Deputy Assistant Attorney General David Gelfand of the Justice Department’s Antitrust Division. "But the merger of Halliburton and Baker Hughes would have raised prices, decreased output and lessened innovation in at least 23 oilfield products and services critical to the nation’s energy supply," he said.
Before the lawsuit was filed, Halliburton had offered to divest certain assets in an effort to address the department’s competitive concerns. According to the complaint, however, the proposal was inadequate because it did not include full business units and so failed to ensure that today's robust competition between the parties would continue after the merger.
The companies had anticipated regulatory challenges when they originally struck their agreement in 2014, but repeatedly stressed that they felt the obstacles could be overcome.
"This was an extremely complex, global transaction and, ultimately, a solution could not be found to satisfy the antitrust concerns of regulators, both in the US and abroad," Martin Craighead, Baker Hughes CEO, said.
Halliburton will have to pay a $3.5bn break-up fee to Baker Hughes – a condition of the merger agreement put in place in a nod to anticipated regulatory challenges.
The deal also faced antitrust challenges in the EU, Brazil and Australia. The EU antitrust authorities said they took note of the companies abandoning merger talks following opposition by the regulators worldwide.
The EU said its initial probe had indicated "serious potential competition concerns" in more than 30 product and service lines, both for offshore and onshore businesses. The EU says it worked closely with the US Justice department in its investigation into the deal.