Two companies crucial to the business of US energy exploration have abandoned their planned $34 billion merger, the Justice Department said Sunday.
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The companies, through a joint prepared statement, said that the Justice Department had reached an incorrect conclusion in the assessment it made of this transactions and that the action by the federal agency was counterproductive, especially related to the context of the challenges that the U.S.as well as global energy industry was facing today.
Analysts at Tudor Pickering Holt said there were no surprises in the earnings report, and they see no reason to change their view of the company “given its premier position in North American completion services heading into what we believe will be a USA well completions-led oilfield service industry recovery starting up later this year”.
Houston-based Baker Hughes would buy back shares totalling $1.5bn and debt totalling $1bn, with proceeds of the break-up fee, the company said. The company will buy back about $1.5 billion in shares, using part of the funds it receives from Halliburton, while also reducing costs.
Halliburton will pay Baker Hughes the $3.5 billion reverse termination fee, which should help offset some of the downside on the transaction.
The U.S. Justice Department filed a lawsuit last month to stop the deal, arguing that it would leave only two dominant oilfield services companies.
In announcing the termination Sunday, Halliburton CEO Dave Lesar cited “challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics”.
The $28 billion merger deal is off after opposition from USA and European antitrust regulators. Baker Hughes will also immediately begin cost-cutting measures. The initial phase of the cost reduction efforts is expected to result in $500 million of savings annually by the end of 2016.
Deputy Assistant Attorney General David Gelfand of the Justice Department’s Antitrust Division told reporters in a conference call Monday that there was no possible way the Justice Department would have authorized Halliburton’s acquisition of Baker Hughes, a deal once valued at $34 billion.
“We are the execution company – our strategy, technologies and service quality are focused on helping customers maximize production at the lowest cost and driving industry leading growth, margins and returns”.
The proposed merger between Halliburton and Baker Hughes was valued at almost $35 billion when it was announced in November of 2014.
Now, some analysts are anticipating a wave of industry consolidation, sales and restructuring, even as Halliburton and Baker Hughes are viewed as financially resilient enough to ride out the cycle. The companyÂ’s Drilling and Evaluation segment provides drilling fluid systems, performance additives, completion fluids, solids control, specialized testing equipment, and waste management services; and drilling systems and services.
Halliburton emerges $3.5 billion poorer because of the break-up fee, but it remains in a strong position as the leader in fracking and in completing USA wells, said Bill Herbert, an analyst with Simmons & Co., part of Piper Jaffray.
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Shares of Halliburton rose 74 cents, or 1.8 percent, to close at $42.05, while Baker Hughes dropped 96 cents, or 2 percent, to $47.40.
