Strategy

Antitrust Cloud Over Halliburton-Baker Hughes Deal

The U.S. Justice Department reportedly is concerned over whether other oilfield-services companies will provide credible competition.
Matthew HellerDecember 11, 2015

Halliburton’s $35 billion acquisition of Baker Hughes is under threat from antitrust regulators in the U.S. and abroad amid concerns it will stifle competition in the oilfield-service industry.

According to the Wall Street Journal, the U.S. Justice Department is questioning whether other companies could buy some of the assets that Halliburton and Baker Hughes would need to sell for the deal to pass regulatory muster and whether those companies could become credible rivals to the combined company.

The oil price downturn has reduced demand for drilling, complicating the oilfield-service giants’ efforts to find buyers for assets, experts said.

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“Everything about this deal has turned out to be more complicated and, frankly, more challenging than what was initially envisioned,” William Herbert, co-head of securities at Simmons & Co. International, an energy-focused investment bank, told the Journal.

Halliburton recently met with the Justice Department’s top antitrust official, Bill Baer, to talk about the deal, the WSJ said, a sign the review process has reached a critical stage. Christian Garcia, Halliburton’s interim CFO, said Wednesday the company was confident the deal would close, but conceded the goal of wrapping it up in 2015 was all but dead.

The European Commission, meanwhile, has set a Jan. 12 deadline for clearing the merger or starting an in-depth investigation, and antitrust authorities in Brazil and Australia are concerned the deal will increase costs for customers seeking a package of integrated oilfield services.

“Halliburton has argued that the merger will provide better value for its customers, and that competition in the oil patch is already intense, with low oil prices pushing every company to slash prices,” the WSJ said.

Halliburton and Baker Hughes have so far announced plans to sell overlapping product lines that generated $5.2 billion in revenue, according to people familiar with the matter. They agreed last year to divest as much as $7.5 billion worth of business if required by regulators.

“It’s hard to be excited to be an investor in the oil field in 2015,” said Richard Spears, vice president of Spears & Associates, a research firm. “The downturn isn’t done yet.”