U.S. challenges Halliburton merger with Baker Hughes

April 07, 2016 | Asset Acquisitions & Divestitures, Oilfield Services, United States & Canada

Washington, US | – The US Justice Department announced Wednesday that it had filed suit to prevent Halliburton, an oil-field services behemoth, from acquiring its rival, Baker Hughes.

If successful, the antitrust suit could derail a huge merger between two of the largest oil-field services companies in the world, a deal that at one point was reportedly valued at $35 billion.

U.S. Attorney General Loretta Lynch said regulators were concerned that the acquisition would lead to decreased competition and higher prices. European regulators also have expressed concerns about the deal.

“America and the American consumer deserve meaningful competition,” Lynch said in a call with reporters. The merger would “substantially reduce competition in 23 separate markets,” she said. And it would turn many of those markets into “noncompetitive duopolies.”

In a joint statement, the companies said they “intend to vigorously contest” the government’s attempt to block the merger, arguing that the deal was “pro-competitive and will allow the companies’ customers to benefit from a more flexible innovative and efficient oil services company.”

Halliburton had earlier proposed a divestiture package, worth billions, “that will facilitate the entry of new competition in markets in which products and services are being divested.”

The companies said they “intend to demonstrate that the [Justice Department] has underestimated the highly competitive nature of the oilfield services industry, the many benefits of the proposed combination and the sufficiency of the divestitures.”

The merger, which was first announced in 2014, would allow the companies to operate more effectively, which they said was increasingly important because of low oil prices. But Lynch said the proposed divestiture “falls far short” of addressing the department’s concerns.

Assistant Attorney General Bill Baer said the Justice Department doesn’t “bring these cases lightly. We bring them where the facts fully support concerns about the future competition in these markets.”

The attempt to block the merger is the latest antitrust action lodged by the Justice Department in recent years.

Testifying before Congress last month, Baer said his office has sought to foster increasing competition to help consumers. “Our antitrust laws have sought to enshrine the core principle that consumers win from competition and lose when it is unfairly restricted,” he said.

Previously, the Justice Department sued to block Electrolux’s acquisition of General Electric’s appliance business, which Baer said “preserved head-to-head competition and choice for major household cooking appliances.” Comcast and Time Warner abandoned a merger after the department raised concerns.

Halliburton and Baker Hughes had agreed to extend the time period to gain regulatory approval to the end of the month. In the statement, they said that if the judicial review goes beyond them, they could continue to seek regulatory approval, or either company could terminate the merger agreement.

The companies shouldn’t waste resources fighting the lawsuit, said Brian Uhlmer, an analyst at GMP Securities in Houston. Uhlmer said Baker Hughes should just take the $3.5 billion breakup fee and walk away.

“Baker’s better off taking that money, doing a levered buyback and fixing their business and being a real competitor, instead of sitting around, constrained by the merger agreement,” Uhlmer said. “It’s burning a hole in their pocket, and they’re losing cash and market share because of Halliburton.”

Halliburton shares rose $2.04, or 5.9 percent, to close Wednesday at $36.44, the biggest gain since August, while Baker Hughes rose $3.47, or 8.8 percent to $42.83.