US government sues to stop Halliburton-Baker Hughes deal

07 April 2016, Week 13, Issue 398

The US Department of Justice (DoJ) has filed a lawsuit in an effort to stop oilfield services provider Halliburton from acquiring rival Baker Hughes. 

The deal, which would unite the second and third largest services firms, threatens to eliminate head-to-head competition in 23 products and services used in oil exploration and create a duopoly with market leader Schlumberger, the DoJ said on April 6. The companies have said they would contest the lawsuit.

US antitrust regulators have previously voiced concerns that the merger could result in less innovation and higher prices, Reuters reported. The merger would result in the sell-off of drilling technology subsidiaries, which would be bought out by smaller firms that would not be able to keep pace with Halliburton and Baker Hughes, an anonymous source told the news service.

In Australia and Europe, competition authorities have also flagged concerns about how the proposed merger would reduce competition in both onshore and offshore products markets, in an industry where technological innovation is considered particularly important.

Halliburton originally announced its plans to buy Baker Hughes in November 2014 in a deal that was valued at the time at around US$35 billion. 

The deal was scheduled to close by the end of last year, but has been slowed by antitrust review delays in the US and Europe.

Halliburton said that it would be prepared to sell some of its businesses in order to satisfy the competition authorities. The Houston-based firm said that work on the deal had cost it a total of US$308 million in 2015. 

While the lawsuit significantly reduces the chances of the merger going ahead, it does not necessarily spell the end of the deal. Bloomberg noted that some merger lawsuits brought by the government are settled when companies agree to sell assets to resolve competition concerns. Others contest such lawsuits, as Halliburton and Baker Hughes are planning to do.

Earlier this week, the DoJ also sued ValueAct Capital for violating notification requirements related to the proposed merger. The activist hedge fund, which failed to notify the government of over US$2.5 billion in share purchases in Halliburton and Baker Hughes, has said it will fight the case.

 

Edited by

Anna Kachkova

Editor

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