Halliburton-Baker Hughes deal ‘unfixable’

The company logo of Halliburton oilfield services corporate offices is seen in Houston, Texas April 6, 2012. REUTERS/Richard Carson (UNITED STATES - Tags: BUSINESS LOGO ENERGY)©Reuters

Halliburton’s failed $28bn bid for rival Baker Hughes, which was abandoned by the two companies on Sunday, faced insurmountable objections from competition regulators, the US Department of Justice has said.

David Gelfand, deputy assistant attorney-general in the antitrust division of the DoJ, told reporters that the agreed deal, which would have brought together the world’s second-largest and third-largest oil services companies, was “not fixable” by proposed remedies such as selling some business lines.

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The US administration’s tough stance raises questions over Halliburton’s pursuit of Baker Hughes, and in particular over its promise during the takeover talks in November 2014 to pay a $3.5bn break fee if the deal collapsed.

It had been clear that the takeover was in trouble since last month, when the DoJ filed a legal action to block it.

Investors reacted positively to the confirmation that it was dead, with Halliburton’s shares rising more than 2 per cent to $42.27 in morning trading in New York. Baker Hughes shares fell almost 4 per cent to $46.93.

The chief executives of the two companies said in statements on Sunday that the difficulties they faced in securing approvals from regulators meant they were forced to abandon the deal.

The break fee, the second-largest ever paid, will be sent to Baker Hughes by Wednesday.

Baker Hughes said on Monday morning it would use some of its windfall to buy back $1.5bn in shares and $1bn in debt.

Loretta Lynch, US attorney-general, described the decision to abandon the deal as “a victory for the US economy and for all Americans”.

Mr Gelfand said the impact of the takeover on competition in the oil services industry would have been so wide-ranging that “no remedy could have satisfied the [legal] standard we must apply to these cases”.

He added that the DoJ had received “extreme statements of concern” from dozens of companies and more than 100 individuals worried about the deal.

In a court filing last month, the DoJ identified 23 specific markets that it said raised particular concerns about competition. For some products and services, such as offshore cementing and drilling fluids, the deal would have left Halliburton and its larger rival Schlumberger sharing more than 90 per cent of the market.

European, Brazilian, Australian and Mexican competition authorities, among others, had also been investigating the deal, and had been co-operating with the US DoJ.

Margrethe Vestager, the EU commissioner with responsibility for competition, said on Monday: “A number of customers contacted us to raise issues with the proposed transaction.”

Halliburton said Dave Lesar, its chief executive, and other executives would discuss the failure of the bid in a call for analysts on Tuesday morning.

One person familiar with the situation said Halliburton had studied a number of potential sales of businesses, but ended up being squeezed by the DoJ on one side and potential buyers on the other.

Several interested parties were applying pressure to keep the price of the assets low, as they knew Halliburton had to sell to get the Baker Hughes deal done.

The person said: “Halliburton was simply not prepared to keep on offering sales of assets that would have made the combination with Baker Hughes untenable for its shareholders.”

Warren Buffett, the billionaire investor, said in a television interview that after having looked closely at the proposed deal he was not surprised that the DoJ had blocked it.

“It sounded initially like they were putting together two companies that were either actual or potential competitors,” he told CNBC.

“If the directors of two companies really like the deal too much, they may have an antitrust problem.”

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The article Halliburton-Baker Hughes deal ‘unfixable’ was originally published at FT.com.