The US Department of Justice (DOJ) is taking action and suing to block Halliburton’s US$34.6 billion takeover of Baker Hughes, claiming that the merger threatens to eliminate competition, raise prices and reduce innovation in the oilfield services industry. However, both Halliburton and Baker Hughes are vigorously contesting the allegations.
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Image from Halliburton Twitter. |
The DOJ has filed its lawsuit in the US District Court for the District of Delaware, where both companies are incorporated, alleging that the merger would eliminate important head-to-head competition in markets for 23 products or services used for on- and offshore oil exploration and production in the US.
“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.”
During the department’s investigation, which began last year, Halliburton tried to remedy the situation 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 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, the DOJ said.
“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, Baker Hughes contest
Both Halliburton and Baker Hughes are fighting back, vehemently challenging the DOJ’s accusations, stating that the mega merger is pro-competitive and will allow customers to benefit from a more flexible, innovative, and efficient oilfield services company.
“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 US and global energy industry are currently experiencing,” the two companies said in a joint statement. “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.”
Halliburton pointed out that early in the process, it had proposed a divestiture package worth billions of dollars that will facilitate the entry of new competition in markets in which products and services are being divested.
“Both companies strongly believe that the proposed divestiture package, which was significantly enhanced, is more than sufficient to address the DOJ’s specific competitive concerns,” Halliburton said. “The companies 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, 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.”
In December, the two companies extended the time period to obtain DOJ regulatory approvals to no later than 30 April 2016. Should the review go beyond 30 April, Halliburton said it may continue to seek relevant regulatory approvals or either of the parties may terminate the merger agreement.
The DOJ isn’t the only road block that Halliburton and Baker Hughes have run into. Last month, the European Union (EU) announced it was delaying the merger, after not receiving key data about the deal. In February, the EU suspended the deadline for the takeover, about one month after opening an in-depth investigation to find out if the merger would impede effective competition.
Read more:
DOJ delays Halliburton, Baker Hughes merger
Halliburton raising billions for Baker Hughes merger
Halliburton, Baker Hughes to sell more businesses
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