DOJ files lawsuit to stop Halliburton – Baker Hughes merger

Following the reports on Wednesday  that the U.S. Justice Department (DOJ) was preparing a lawsuit that would stop the proposed multi-billion merger deal between Baker Hughes and Halliburton, the DOJ did just that.

According to a statement on the Department of Justice’s website, the DOJ filed a civil antitrust lawsuit today seeking to block Halliburton Company’s proposed acquisition of Baker Hughes Inc., alleging that the transaction threatens to eliminate competition, raise prices and reduce innovation in the oilfield services industry.

The department filed its lawsuit in the U.S. District Court for the District of Delaware, where both companies are incorporated. The complaint alleges that the acquisition – which the companies valued at $34 billion when announcing it – would combine two of the three largest oilfield services companies in the United States and the world, eliminating important head-to-head competition in markets for 23 products or services used for on- and off-shore oil exploration and production in the United States.

Eliminating competition

“The proposed deal between Halliburton and Baker Hughes would eliminate vital competition, skew energy markets and harm American consumers,” said Attorney General Loretta E. Lynch. “Our action makes clear that the Justice Department is committed to vigorously enforcing our antitrust laws. In the days ahead, we will continue to stand up for fair deals and free markets, and for the American people we are privileged to serve.”

“This transaction is unprecedented in the breadth and scope of competitive overlaps and antitrust issues it presents,” said Assistant Attorney General Bill Baer of the department’s Antitrust Division. “Halliburton and Baker Hughes are two of the three largest integrated oilfield service companies across the globe, and they compete to invent and sell products and services that are critical to energy exploration and production. We need to maintain meaningful competition in this important sector of our economy.”

Halliburton’s proposed divestments not enough

According to DOJ, during the department’s investigation, Halliburton proposed to remedy the significant harmful effects of the transaction by divesting a mix of assets extracted from certain business lines of the two companies. According to the complaint, the proposed divestitures would not include full business units but rather would be limited to certain assets, with the merged firm holding onto important facilities, employees, contracts, intellectual property, and research and development resources that would put the buyer of those assets at a competitive disadvantage.

The DOJ claims the proposed divestures mostly would allow Halliburton to retain the more valuable assets from either company while selling less significant assets to a third party. The complaint further alleges that this divesture would not replicate the substantial competition between the two rivals that exists today.

Halliburton is a Delaware corporation headquartered in Houston. Founded in 1919, Halliburton is the largest provider of services and products to the oil and gas industry in the United States. It has operations in approximately 80 countries and earned revenue of $23.6 billion in 2015. The target company, Baker Hughes, is also a Delaware corporation headquartered in Houston. It was formed in 1987 with the merger of Baker International and Hughes Tool Company, both founded over 100 years ago. The third-largest provider of oilfield services in the world, Baker Hughes operates in more than 80 countries and earned revenue of $15.7 billion in 2015.

Halli-Baker contesting the move

Halliburton and Baker Hughes have issued a joint statement in response, in which they say that the two companies intend to “vigorously contest” the U.S. Department of Justice’s (DOJ) effort to block their pending merger.

“The companies believe that the DOJ has reached the wrong conclusion in its assessment of the transaction and that its action is counterproductive, especially in the context of the challenges the U.S. and global energy industry are currently experiencing,” the statement reads.

In contrast to the DOJ claims that the merger would eliminate competition,  Halliburton and Baker Hughes claim the merger is pro-competitive and “will allow the companies’ customers to benefit from a more flexible, innovative, and efficient oilfield services company.”

“The transaction will provide customers with access to high quality and more efficient products and services, and an opportunity to reduce their cost per barrel of oil equivalent,” the two oilfield services suppliers said.

On the notion by DOJ, that the proposed divestments by the two companies are not enough to alleviate competition concerns, both say they “strongly believe that the proposed divestiture package, which was significantly enhanced, is more than sufficient to address the DOJ’s specific competitive concerns.”

DOJ understimates the competitive nature of the oilfield

The companies assure they intend to demonstrate that the DOJ has underestimated the highly competitive nature of the oilfield services industry, the many benefits of the proposed combination, and the sufficiency of the divestitures. Once completed, Baker Hughes and Halliburton says, the transaction will allow customers to operate more cost effectively, “which is especially important now due to the state of the energy industry and oil and gas prices.”

“Halliburton and Baker Hughes look forward to a full, impartial judicial review of the pending transaction, including the sufficiency of the proposed divestitures,” the two firms said.

Halliburton and Baker Hughes previously agreed to extend the time period to obtain regulatory approvals to no later than April 30, 2016, as permitted under the merger agreement. However, in today’s statement, the two oilfield giants said that if the judicial review extends beyond April 30, 2016, “the parties may continue to seek relevant regulatory approvals or either of the parties may terminate the merger agreement.”

This article has been amended to include the statement(s) by Halliburton and Baker Hughes

Offshore Energy Today Staff

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