The Justice Department disclosed the plans on Sunday, May 1, 2016.
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The two mightiest USA oil companies don’t look so mighty right now. Halliburton and Baker Hughes anticipated regulatory challenges, but had maintained confidence that they could be overcome.
Halliburton will pay a termination fee of $3.5 billion to Baker Hughes following the companies’ announcement to call off a merger deal that has been valued at $28 billion. The market signaled that Baker Hughes shareholders might have missed out on a nice payoff.
Halliburton had postponed releasing its full results from April 22 to accommodate the April 30 deadline to close its acquisition of Baker Hughes Inc.
Halliburton announced the Baker Hughes takeover in November 2014 in a bid to better compete against industry leader Schlumberger Ltd. Because of their size, regulators in the US and overseas viewed their combination with suspicion.
Deputy Assistant Attorney General David Gelfand of the Justice Department’s Antitrust Division said in the statement that the merger would have “raised prices, decreased output and lessened innovation in at least 23 oilfield products and services critical to the nation’s energy supply”.
The canceled merger is also a major blow to investment banking groups, which served as advisers to the companies during the course of the deal. The number of big and complex deals being proposed made it “a unique moment in antitrust enforcement”, Attorney General Loretta Lynch said last month.
“This is a much tougher market”, he told the WSJ.
Critics of megamergers applauded. Despite being aware of the potential regulatory challenges they might have to face, both the companies aimed to overcome the obstacles when they announced the merger back in 2014.
“No efficiencies argument is going to win the day”, said Diana Moss of the American Antitrust Institute.
With the oil crash, it would have been hard to justify the economics of the merger to shareholders.
But Baker Hughes has been constrained by its merger agreement from making sweeping changes without Halliburton’s approval. A spokesman for Halliburton cited company policy in declining to comment on the case, but said that “the health and safety of our employees is of paramount concern”.
In a statement Sunday, Halliburton Co.
Martin Craighead, chairman and chief executive officer of Baker Hughes, said in a news release, “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 United States and overseas”.
On April 6, the department filed suit in order to block the merger of the two power companies.
Baker Hughes says it expects to make some US$500 million annual savings by the end of 2016, as part of measures it is taking following the collapse of its proposed $34.6 billion merger with Halliburton. While Halliburton had come up to $7.5 billion in divestitures, that apparently wasn’t enough.
Sales also slid 40% to nearly $4.2 billion, compared to $7.05 billion in the first quarter of previous year. Baker Hughes, he said, “is more of a restructuring opportunity”.
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Halliburton will discuss the deal’s demise in an earnings call Tuesday.
