Halliburton and Baker Hughes cancel $35bn merger

July 2016 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Bringing to an end a long-running saga, oilfield services giants Halliburton Company and Baker Hughes Incorporated announced the termination of their $28bn merger agreement.

The decision to pull the plug on the deal was taken following a far-reaching regulatory review involving both US and European antitrust regulators, which culminated in the US Department of Justice (DOJ) stating that it intended to block the deal.

The merger agreement, originally valued at $34.6bn, was first announced in November 2014. At the time, the agreement was touted as an effective way of better competing against oil exploration industry leader Schlumberger Ltd.

In a statement, the DOJ explained its position by noting that the deal would have resulted in just two dominant entities in this business: the newly formed company (Halliburton and Baker Hughes) and Schlumberger, the world’s largest oil services company.

“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 US economy and for all Americans,” said US attorney general Loretta E. Lynch.

The DOJ statement also opines that the merger would have “raised prices, decreased output and lessened innovation in at least 23 oilfield products and services critical to the nation’s energy supply”. Since the commencement of the antitrust investigations, Halliburton and Baker Hughes shares declined markedly amid the worst oil slump in a generation, reducing the deal’s value from $34.6bn when initially announced to £28bn.

Back in February 2016, Halliburton had offered to sell additional assets in a bid to appease antitrust concerns. However, this was deemed insufficient to satisfy concerns because “the assets being sold carried a high risk of becoming less competitive after they were divested”, according to David Gelfand, the deputy assistant attorney general.

Founded in 1919, Halliburton is one of the world’s largest providers of products and services to the energy industry. With over 55,000 employees, representing 140 nationalities in over 80 countries, the company serves the upstream oil and gas industry throughout the lifecycle of the reservoir – from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimising production through the life of the field.

“While both companies expected the proposed merger to result in compelling benefits to shareholders, customers and other stakeholders, challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action,” said Dave Lesar, chairman and chief executive of Halliburton, one of the world’s largest providers of products and services to the energy industry.

As part of the termination of the merger agreement, Halliburton is to pay Baker Hughes a termination fee of $3.5bn by Wednesday 4 May 2016, funds that the firm has said it will invest in share buybacks and $1bn in debt reduction. Baker Hughes has also pledged to cut costs as it focuses on new products for well drilling and production.

Baker Hughes, a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry, employs 39,000 people in more than 80 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources.

“The outcome is disappointing because of our strong belief in the vast potential of the business combination to deliver benefits for shareholders, customers and both companies’ employees,” said Martin Craighead, chairman and chief executive of Baker Hughes. “This was an extremely complex, global transaction and, ultimately, a solution could not be found to satisfy the antitrust concerns of regulators, both in the United States and abroad.”

Fraser Tennant