Halliburton, Baker Hughes terminate $34.6-bn merger over regulatory issues

02 May 2016

Oilfield services providers Halliburton Co and Baker Hughes Inc yesterday said that they are terminating their proposed $34.6 billion merger after antitrust regulators in US and Europe opposed the deal.

"Challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action," said Dave Lesar, CEO of Halliburton.

Halliburton will now have to pay Baker Hughes a $3.5-billion breakup fee as part of the merger agreement if the deal did not go through due to anticipated regulatory issues.

In November 2014, Halliburton announced that it would acquire its smaller rival Baker Hughes in a friendly $34.6-billion deal, leading to a merged entity worth $67 billion. (See: Halliburton to acquire rival Baker Hughes for $34.6 bn)

The proposed merger would have ended competition between the two decade-old rivals in the oil field service business, but a tie up between the No 2 and No 3 oilfield services giants would certainly attract antitrust concerns not only in the US, but also in Europe, Brazil and China.

The proposed merger of the two Houston-based companies could have challenged market leader Schlumberger.

Both are giants in the oilfield services providing services ranging from drilling wells, hydraulic fracturing / fracking, production and reservoir consulting, formation evaluation to pressure pumping.

Both the US Department of Justice (DoJ) and the European Commission (EC) expressed concerns that the deal might reduce competition and innovation.

The deal had already been approved by regulators in Canada, Colombia, Ecuador, Kazakhstan, South Africa and Turkey, but required approval from the US, European Union, Brazil, and Australia.

Halliburton had in January offered to sell assets of both companies that had combined 2013 revenue of $5.2 billion in a bid to gain regulatory approvals,. The EC stopped investigation into the merger  in March for the second time .

The DoJ said that Halliburton's offer was ''inadequate because it did not include full business units, withheld many critical assets and personnel, involved numerous ongoing entanglements between the merged company and the divestiture buyer and generally failed to replicate the robust competition between the parties that exists today.''

The EC said that it sees potential competitive concerns in more than 30 product and service lines, both onshore and offshore and the merger would leave only Schlumberger as a competitor in the EU, which could "lead to less choice and potentially higher prices for customers.''

Last month the DoJ filed a lawsuit to block the merger alleging that the transaction would unlawfully eliminate significant head-to-head competition between the companies in at least 23 markets crucial to the exploration and production of oil and natural gas in the US.

"The companies' decision to abandon this transaction – which would have left many oilfield service markets in the hands of a duopoly – is a victory for the US economy and for all Americans," US Attorney General, Loretta Lynch, yesterday said in a statement.

Lesar said challenges in obtaining regulatory approvals as well as ''general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action.''

Founded in 1919, Halliburton is one of the world's largest providers of products and services to the energy industry.

With over 55,000 employees in over 80 countries, the company serves the upstream oil and gas industry throughout the lifecycle of the reservoir - from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.

Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry.

The company employs 39,000 employees in more than 80 countries providing to find, evaluate, drill, produce, transport and process hydrocarbon resources.