Halliburton – Baker Hughes merger falls through

Following a series of regulatory hurdles, the world’s second and third biggest oilfield services providers, Halliburton and Baker Hughes, have terminated the merger agreement they entered into in November 2014, effective April 30, 2016.

In connection with the termination of the merger agreement, Halliburton said it would pay Baker Hughes the termination fee of $3.5 billion by Wednesday, May 4, 2016.

The latest stumbling block of the proposed multi-billion merger was a lawsuit filed by the U.S. Department of Justice in April aiming to block the acquisition.

The DOJ’s investigation revealed serious antitrust problems with the proposed deal, alleging 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.

The merger also encountered opposition from the European regulators when the European Commission launched an in-depth investigation in January 2016 claiming that the proposed deal would impede effective competition.

Termination as ‘best course of action’

“While both companies expected the proposed merger to result in compelling benefits to shareholders, customers and other stakeholders, 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, Chairman and Chief Executive Officer of Halliburton.

“While disappointing, Halliburton remains strong.”

“I sincerely thank both our employees as well as the Baker Hughes employees for their tireless efforts throughout the regulatory review process. While disappointing, Halliburton remains strong. 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.”

“Today’s outcome is disappointing because of our strong belief in the vast potential of the business combination to deliver benefits for shareholders, customers and both companies’ employees,” said Martin Craighead, Chairman and Chief Executive Officer of Baker Hughes.

“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 abroad. As we turn the page on this chapter, I want to thank our customers for their patience and continued loyalty over the past 18 months. I also want to thank the entire Baker Hughes team for their unwavering dedication and commitment during this process. Baker Hughes is strongly positioned to build on its foundation and heritage as a technology innovator that differentiates for our customers and delivers compelling value to shareholders.”

“This case serves as a stark reminder that no merger is too big or too complex to be challenged…”

U.S. Attorney General, Loretta E. Lynch, commented on the duo’s decision to abandon the deal: “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 U.S. economy and for all Americans.”

“This case serves as a stark reminder that no merger is too big or too complex to be challenged, and that the hardworking men and women of the department’s Antitrust Division stand ready, willing and able to vigorously enforce the nation’s antitrust laws when companies propose deals that would enhance shareholder value at the expense of consumer interests.”

According to the DOJ, before the lawsuit was filed, Halliburton had offered to divest certain assets in an effort to address the department’s competitive concerns. According to the complaint, however, the proposal 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 DOJ concluded.

Halliburton recently posted revenue of $4.2 billion for the first quarter 2016, down from $7 billion a year ago, citing record low rig count levels in the U.S., and the lowest worldwide rig count since 1999.

Baker Hughes on the other hand saw its loss deepen during the first quarter of 2016 when compared to the prior-year quarter. On a GAAP basis, net loss attributable to Baker Hughes for the first quarter was $981 million, compared to a loss of $589 million in the same period last year.

Offshore Energy Today Staff