Industryweek 10919 Halliburton Acquire Baker Hughes 1

Halliburton, Baker Hughes Call Off Merger

May 2, 2016
"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,' the companies said. 

Oil services companies Halliburton and Baker Hughes announced May 1 they were calling off their massive multibillion-dollar proposed merger that had met strong resistance from regulators.

The deal, announced in November 2014, foresaw a $34.6 billion takeover by Halliburton of its rival, creating a powerful competitor to global industry leader Schlumberger.

"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," Halliburton's  chief executive, Dave Lesar, said in a joint statement.

Earlier this month, U.S. antitrust officials filed suit to block the proposed merger, agreed to in response to plunging oil prices, saying it would eliminate competition, raise prices and reduce innovation in the oil services business.

The Justice Department said the transaction would eliminate head-to-head competition in markets for 23 products or services, creating a virtual duopoly for key oil services such as offshore well completions and on- and offshore cementing.

It said the merger would remove the incentives for two industry leaders to improve technology and that low oil prices did not justify a bad deal for consumers.

Halliburton and Baker Hughes -- the world's number two and three oil services companies, which provide well service and drilling products to large oil companies like ExxonMobil and Total -- said at the time they would "vigorously contest" the case.

They argued that the deal would provide customers with better access to top technology and lower the cost of producing oil.

$3.5 Billion Termination Fee

Martin Craighead, chairman and chief executive of Baker Hughes, called the termination "disappointing."

"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," he said.

Halliburton will pay Baker Hughes a termination fee of $3.5 billion by Wednesday, according to the joint statement.

U.S. Attorney General Loretta Lynch welcomed the deal's demise."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," Lynch said.

"This case serves as a stark reminder that no merger is too big or too complex to be challenged."

The Justice Department said that before it filed suit, Halliburton had offered to divest certain assets in an effort to address its 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," it said.

Across the Atlantic, the European Commission in January had opened a probe into the merger, concerned that the move would increase oil and gas exploration costs resulting in higher energy prices in Europe.

In 2015, Halliburton had revenues of $23.6 billion, while Baker Hughes had revenues of $15.7 billion. Schlumberger's revenues were $35.5 billion.

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