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Halliburton-Baker Hughes Merger In Jeopardy After Failing to Satisfy DOJ

Halliburton Co. and Baker Hughes Inc. said Tuesday they now are uncertain that their merger will be completed because a timing agreement with the antitrust division of the Department of Justice (DOJ) is going to expire before reaching a settlement.

The $34.6 billion merger announced in late 2014 would combine the No. 2 (Halliburton) and No. 3 (Baker) global oilfield service operators (see Daily GPINov. 17, 2014). Halliburton is the No. 1 hydraulic fracturing provider in North America also. Since announcing their tie-up, the companies have agreed to sell assets to ensure they would pass antitrust muster. However, DOJ "has informed the companies that it does not believe that the remedies offered to date are sufficient" to address its concerns.

The companies said they are continuing discussions with federal officials and remain focused on completing the transaction "as early as possible in 2016, but there is no guarantee that an agreement with the DOJ or other competition authorities will be reached."

In that regard, Halliburton and Baker agreed to extend the transaction's closure to April 30, as permitted under the merger agreement, "though the parties would proceed with closing prior to such date if all relevant competition approvals have been obtained." The boards of both companies unanimously approved the agreement and shareholders of each company overwhelmingly voted for the transaction.

Justice officials said they would assess "further proposals and look forward to continued cooperation from the parties in their continuing investigation," Halliburton and Baker said in a joint statement.

"Halliburton and Baker Hughes believe that the proposed merger is good for the industry and customers. The merger is expected to create a strong company and achieve substantial efficiencies enabling it to compete aggressively to provide efficient, innovative and low-cost services. Completion of the transaction would allow customers to operate more cost-effectively, which is increasingly important due to the current state of the energy industry and oil and gas prices."

When the merger was announced, Halliburton and Baker officials separately acknowledged that their operations in many areas, particularly in North America, overlap. Combining their offerings is expected to reduce overall costs. But there also is the worry that they would prevent competition. A major shareholder last month expressed confidence in the tie-up and said the partners remained committed to doing what was necessary to close the transaction, initially planned this year (see Daily GPI, Nov. 25).

The operators said in the past year they had "engaged in extensive and productive discussions" with Justice regarding the merger. "The parties have responded to numerous DOJ requests for information, producing millions of pages of documents, providing numerous written submissions in response to specific questions and participating in multiple meetings with the DOJ."

Early in the process, Halliburton said it proposed to DOJ "a substantial divestiture package that would facilitate the entry of new competition in markets in which products and services are being divested. Both companies strongly believe that the divestiture package, which recently was significantly enhanced to address the DOJ's specific competitive concerns, is more than sufficient to address concerns raised by competition authorities, including the DOJ."

The potential partners said they also continue to work to resolve any remaining issues with the European Commission and other competition enforcement authorities. The pending acquisition has received regulatory clearances in Canada, Colombia, Ecuador, Kazakhstan, South Africa and Turkey.

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