Halliburton, blocked by federal regulators from buying rival oil-services company Baker Hughes, is staring at another huge disappointment – a $3.5 billion break-up fee. Few, however, predicted the depth and duration of lower prices caused by a global oversupply of oil. Its suit said of the merger that “it would combine two of the three largest providers of oilfield services in the world, it would eliminate substantial head-to-head competition, and it would likely lead to higher prices and less innovation in this critically important industry”.
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Attorney General Loretta Lynch said the deal would “skew energy markets and harm American consumers”.
In a news release, Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division called the proposed merger “unprecedented in the breadth and scope of competitive overlaps and antitrust issues it presents”.
“I have seen a lot of problematic mergers in my time”.
In eight markets, Baer said, the combined companies would have over 90% of USA sales, and in nine others, their market share would be above 70%. Some deal proposals should never leave the corporate boardroom, he said, and “this deal falls squarely in that category”. The divestiture would not replicate the substantial competition between Halliburton and Baker Hughes today, the government says.
Lesar also stated that Halliburton and Baker Hughes plan on demonstrating to the DOJ the “many benefits” of the proposed combination and the “sufficiency” of the proposed divestment of assets. But he said the companies operate in a cyclical business and the downturn “is not a justification for an anticompetitive merger”.
The Justice Department was highly critical of the companies’ divestiture proposal, saying the merged firm would retain more valuable assets while selling less-significant ones to third parties.
To retaliate, Halliburton already said they are contesting the lawsuit and Baker Hughes said the same. “Our lawsuit should surprise no one”.
In expressing its concerns earlier this year, the European Commission found only Baker Hughes, Halliburton and Schlumberger were able to provide necessary services to the industry, adding the merger of the former two would grossly inhibit competition from smaller potential market players.
Halliburton shares (HAL) jumped 6% to finish the day at $36.64 while Baker Hughes shares (HAL) rose 8.4% to close at $42.67, as investors clung to a semblance of certainty regarding the deal’s outcome after almost a year and a half of chatter over its fate.
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“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. The person spoke on condition of anonymity Tuesday, April 5, 2016, because the lawsuit had not yet been announced.
