DOJ probe finds ‘serious antitrust problems’ with Halliburton – Baker Hughes merger

Following the U.S. Department of Justice’s lawsuit seeking to block the proposed merger between the world’s second and third biggest oilfield services provider, Halliburton and Baker Hughes, the department has said that its investigation has revealed serious antitrust problems with the proposed deal.

The DOJ alleged that the transaction threatens to eliminate 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, raise prices and reduce innovation in the oilfield services industry.

At a press call announcing the DOJ’s decision to block Halliburton’s acquisition of Baker Hughes, Assistant Attorney General Bill Baer said that over 90 percent of Baker Hughes’ revenues come from markets where it competes with Halliburton.

“But I have never seen one [merger] that poses so many antitrust problems in so many markets.”

“It is not surprising, therefore, that our investigation revealed serious antitrust problems in numerous markets representing billions of dollars of revenue,” Baer said.

After stating that the DOJ’s investigation had found 23 product and service markets where the merger would cause a substantial lessening of competition, the Assistant Attorney General explained that in many of these markets, the merger would leave the industry with just two dominant suppliers.

According to the Assistant Attorney General, “In eight of the markets alleged in the complaint, the post-merger Halliburton and Schlumberger would have over 90 percent of U.S. sales. In nine other markets, two firms would have a combined share above 70 percent. And in two of the markets – offshore stimulation vessels and offshore liner hanger systems – the merged Halliburton alone would have a share above 80 percent.”

Baer noted: “I have seen a lot of problematic mergers in my time. But I have never seen one that poses so many antitrust problems in so many markets.”

Halliburton & Baker Hughes drive market innovation

Baer also noted that the problem with this merger goes beyond these share numbers as Halliburton and Baker Hughes, as well as Schlumberger, the world’s largest oilfield services provider, drive innovation in these markets and are often the only suppliers qualified to bid on the most challenging projects.

“Competition in the oilfield services industry is critical to our economy. Competition leads to safer ways to extract oil and gas, to more efficient methods for drilling and it keeps down the cost of producing a barrel of oil,” Baer said.

He added it was important to note that these companies compete with each other internationally, and that this merger was the subject of investigations about its effects on competition in multiple jurisdictions, including Europe, Australia, Mexico and Brazil. In Europe, the merger has hit a stumbling block several times failing to provide all the necessary information the European Commission needs to move forward with its decision-making.

“They are keeping the infrastructure essential to making each firm successful and just selling off some pieces.”

Regarding Halliburton’s move to sell of some assets to satisfy the terms of the merger, Baer stated that Halliburton mostly would keep the more successful product lines and sell assets related to the less successful product lines to some third party: “They are keeping the infrastructure essential to making each firm successful and just selling off some pieces. It is like selling part of a building while removing the heating system, the electrical wiring and some of the foundation.”

Further, the department claims that, at the end of the day, Halliburton’s purported settlement would eliminate a formidable rival – Baker Hughes – and replace it with a smaller, weaker rival that is not the equivalent of Baker Hughes today.

Turning Antitrust Division into energy sector regulator

Baer presented another problem of the proposed deal. Namely, Halliburton’s proposed remedy would require the Justice Department and the court to devote substantial resources over many years to supervise the remedy in an attempt to see that it works.

“Halliburton’s proposed remedy is so complicated and convoluted that it would require unprecedented resources to oversee it. Halliburton’s purported “fix” would turn the Antitrust Division into an energy sector regulator, rather than a law enforcement agency. That is not our job. Nor is it an appropriate burden to impose on a federal district court judge,” Baer said.

In conclusion, Attorney General Loretta E. Lynch, said: “Simply put, the parties’ merger puts competition at risk in too many markets. It’s not fixable and it should be enjoined.”

The duo ‘vigorously contests’

To remind, the oilfield services duo informed on Wednesday its plans to “vigorously contest the U.S. Department of Justice’s (DOJ) effort to block their pending merger”. 

According to their mutual statement, 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”.

Offshore Energy Today Staff