Coverage: Halliburton, Baker Hughes deal collapses

Halliburton and Baker Hughes, two major oil services companies, called off their $34 billion merger on Sunday after they struggled to gain regulatory approval.

Renae Merle of The Washington Post had the day’s news:

Oil services giants Halliburton and Baker Hughes abandoned a $34 billion merger late Sunday, bowing to Justice Department complaints that the deal would lead to decreased competition and higher prices.

“The companies’ decision to abandon this transaction – which would have left many oilfield service markets in the hands of a duopoly – is a victory for the U.S. economy and for all Americans,” Attorney General Loretta E. Lynch said in a statement.

“This case serves as a stark reminder that no merger is too big or too complex to be challenged.”

The deal would have combined two of the three largest oilfield services companies in the world. But last month, the Justice Department sued to block the deal.

“The merger of Halliburton and Baker Hughes would have raised prices, decreased output and lessened innovation in at least 23 oilfield products and services critical to the nation’s energy supply,” David I. Gelfand, a deputy assistant attorney general, said in a statement.

Prashant S. Rao of The New York Times explained why the Justice Department wanted the deal terminated:

Halliburton will pay Baker Hughes a $3.5 billion fee as compensation for the collapse of the deal, the companies said. Halliburton will also hold a conference call to discuss the termination of the merger later on Monday, it said.

The Justice Department filed suit to block the deal, the latest move by the Obama administration to crack down on large deals.

In April, the drug company Pfizer abandoned a $152 billion merger with Allergen after the Treasury Department came out with new tax-related rules that eliminated many of the deal’s benefits.

The European Commission, the European Union’s executive body, also raised concerns about the Halliburton-Baker Hughes deal.

“The transaction raised competition concerns on a very large number of markets related to oil field services provided to oil and gas exploration and production companies” in Europe, Margrethe Vestager, the European Union competition commissioner, said in a statement.

She said that “a number of customers contacted us to raise issues with the proposed transaction.”

Regulators in Australia and Brazil also carried out investigations over the proposed deal.

Mike Stone of Reuters showed how both companies have been struggling in recent months:

The collapse of Halliburton’s acquisition of Baker Hughes comes as both companies struggle to cope with the impact that lower energy prices are having on their clients.

Last week, Baker Hughes reported a bigger-than-expected first-quarter loss and warned that the rig count globally would drop steadily through the end of the year because of fewer new projects.

Halliburton said last month it cut more than 6,000 jobs in the first quarter as revenue slumped 40.4 percent and it took a $2.1 billion restructuring charge mainly for severance costs and asset write-offs.

The merger’s cancellation also represents a blow to the investment bankers who advised the companies, as their fee, typically in the range of a percentage point of a deal’s value, is largely predicated upon the transaction being completed.

Goldman Sachs Group Inc advised Baker Hughes, while Credit Suisse Group AG was lead financial adviser to Halliburton, with Bank of America Corp also advising.