US blocks Halliburton-Baker Hughes merger: Update
The proposed merger would eliminate competition, raise prices and reduce innovation in the oilfield services industry, the Justice Department alleged in the lawsuit filed in federal court in the District of Delaware, where both companies are incorporated.
"The proposed deal between Halliburton and Baker Hughes would eliminate vital competition, skew energy markets and harm American consumers," US attorney general Loretta Lynch said.
Halliburton and Baker Hughes said in statements today they would contest the lawsuit, saying the department reached a "wrong conclusion in its assessment of the transaction and that its action is counterproductive, especially in the context of the challenges the US and global energy industry are currently experiencing."
The merger also faces an anti-trust inquiry by the EU competition authority and challenges from Brazil's antitrust watchdog Cade and from the Australian Competition and Consumer Commission.
Halliburton, the second largest oil field services provider, announced the Baker Hughes deal in November 2014 as a way to catch up to top rival Schlumberger and offset the impact of falling oil prices on exploration spending. But the Antitrust Division of the Justice Department raised concerns about the merger soon after it was announced, forcing the companies to consider asset divestitures. Halliburton in September 2015 proposed a multi-billion divestiture package to satisfy those concerns. But the companies' actions failed to satisfy the federal regulators. By contrast, the Justice Department in November 2015 approved Schlumberger's \\$15bn takeover of rival Cameron with no conditions.
Halliburton and Baker Hughes said today the proposed asset sales are more than sufficient to address anti-competitive concerns. The assets on offer include Halliburton's expandable liner hangers, fixed cutter and roller cone drill bits, directional drilling and logging-while-drilling businesses. Baker Hughes' has offered to sell its core completions business, sand control business in the Gulf of Mexico and its its offshore cementing businesses in Australia, Brazil, the Gulf of Mexico, Norway and the UK.
The Justice Department disagreed with the assessment. Anti-trust attorneys have carefully reviewed the proposed sales but the difference between the proposals and what the department expected "was a chasm, not a gap," assistant attorney general Bill Baer said.
The proposed merger would eliminate competition or create duopolies in 23 separate product or services market segments for onshore or offshore oil and natural gas exploration, according to the Justice Department. In several of those market segments, the enlarged Halliburton would account for more than 80pc of sales, Baer said.
"I have seen many problematic mergers but I have never seen one like this that poses so many concerns," Baer said. "It turns the big three [oilfield services providers] into the big two."?Baker Hughes prior to the proposed takeover by Halliburton had raised concerns about securing federal approval in light of anti-trust concerns, Baer said. He contended that Halliburton effectively forced Baker Hughes into a merger by paying a premium on the stock price, promising to sell assets generating \\$7.5bn/yr in revenues and offering a \\$3.5bn payment if the merger did not go through, he said.
Halliburton and Baker Hughes said they looked forward to a judicial review of the merger, including the sufficiency of the proposed sales. The companies said they will decide whether to push through or to terminate the deal if the judicial review continues beyond 30 April.
The companies said that the merger would allow customers to operate more cost effectively, an important consideration given "the state of the energy industry and oil and gas prices."
"We are aware of what happened to oil prices — it is a cyclical business," Baer said. But the companies cannot use the challenges facing the energy industry to become a monopoly, he said.
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