Halliburton's ‘Unfixable’ Deal Succumbed to Global Pushback

Baker Hughes Looks Past Halliburton Deal With Buyback
  • Merger watchdogs from Washington to Brussels raised concerns
  • Companies couldn't offer any fixes to get approval, U.S. said

Halliburton Co.’s plan to acquire rival oil-services firm Baker Hughes Inc. never had a chance.

That was the message Monday from the Justice Department, which sued the companies last month to block the deal, forcing its collapse in the face of antitrust opposition from regulators in the U.S., European Union, Brazil and Australia.

"The deal was not fixable," said David Gelfand, a senior attorney with the department’s antitrust division. "No remedy could have satisfied the standard we must apply to these cases."

The Justice Department’s challenge was a warning shot to competing companies that are looking to combine and satisfy antitrust enforcers that their deals won’t harm competition. Similarly, the department’s investigation of Electrolux AB’s bid for General Electric Co.’s appliance business prompted the companies to abandon their tie-up in December. It is also examining Anthem Inc.’s planned takeover of Cigna Corp. and Aetna Inc.’s bid for Humana Inc.

Some problems just can’t be overcome even with substantial asset sales, Gelfand said on a conference call with reporters. "If parties want to sort of roll the dice and see if they can convince us, that’s their prerogative, that’s their legal right, but they should understand we are ready to litigate these cases," he said.

Halliburton and Baker Hughes called off their $28 billion deal on Sunday after more than a year trying to get approval from regulators in the U.S., European Union, Brazil and Australia. The companies failed to overcome concerns shared by watchdogs the world over that the deal would reduce choice in oilfield services, ultimately running a risk of higher oil and gas prices for consumers.

Halliburton announced the Baker Hughes takeover in November 2014 in a bid to better compete against industry leader Schlumberger Ltd. But as the tussle for regulatory approval turned into a war of attrition, shares of Halliburton and Baker Hughes declined amid the worst oil slump in a generation, reducing the deal’s value from $34.6 billion when it was announced.

The Halliburton-Baker Hughes transaction is one of several "daring deals” that are “very challenging when it comes to concessions," said Denis Fosselard, a lawyer at Ashurst LLP in Brussels. "It may mean they didn’t think well enough ahead of time" of what to offer as "they seemed to have a lot of issues in deciding the assets to sell."

While the combination involved two U.S. companies, their role as the global No. 2 and No. 3 providers of equipment for oil and gas exploration and production required approval internationally. Such services are crucial to "ensuring competitive energy prices for consumers and companies across the EU," the bloc’s Competition Commissioner Margrethe Vestager said Monday.

But it was at home in the U.S., where regulators were most vocal about the proposed deal’s impact on competition. The Justice Department’s then-antitrust chief, Bill Baer, who is now the department’s No. 3 official, said last month that the problems were "unfixable" for a transaction critical to the American economy. The Justice Department in its complaint identified 23 markets where they said the transaction would create a duopoly with market leader Schlumberger.

The EU cited concerns in more than 30 products and services when it opened an in-depth probe into the tie-up in January. The EU echoed fears that only Schlumberger would rival the merged company in offering integrated services and any new supplier would need to expand on a large number of fronts to compete on tenders.

In Brazil, antitrust regulator CADE challenged the deal last year, citing possible price increases and less innovation that might harm the country’s oil and gas industry. Australia’s competition watchdog raised concerns in October that the merger might shrink the number of suppliers for oilfield goods and services, particularly offshore drilling.

To appease regulators, Halliburton had offered to sell several businesses. Among them were its drill-bits unit, which makes the tips of drills for digging wells, and the drilling-services arm, which operates as Sperry Drilling and uses data to track and steer the direction of drill bits. It also agreed to sell Baker’s so-called core completions business, which provides equipment for controlling the flow of oil as it is readied for production.

That wasn’t enough.

"The anticompetitive effects spread across so much of the business there was no way to divest individual free-standing businesses without divesting the entire company," Gelfand said.

(A previous version of this story gave an incorrect title for Bill Baer.)

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