The US Department of Justice (DOJ) filed a civil antitrust
lawsuit in April seeking to block Halliburton
Co.’s proposed takeover of Baker Hughes Inc.,
saying that the transaction could eliminate competition, raise
prices and threaten innovation in oilfield services.
During a media call discussing the reasons behind the
lawsuit, Bill Baer, the Assistant Attorney General for the
DOJ’s Antitrust Division, said that he had never
seen a merger with as many antitrust problems as the one
proposed by Halliburton and Baker Hughes, adding that the
breadth and scope of competitive overlaps and issues it
presents was unprecedented.
Halliburton, the world’s second largest
oilfield services provider, announced its intention to pursue
the acquisition of Baker Hughes, the third largest oilfield
services provider, at the end of 2014, and has since been
working with antitrust authorities globally, including the DOJ,
to gain approval for the merger.
The companies provide drilling and exploration services, as
well as completion and production support and products. Both
are additionally leading producers and providers of oilfield
minerals including barite (barytes) and bentonite.
Halliburton and Baker Hughes have offered a number
of different divestment proposals to alleviate DOJ
concerns over anti-competitiveness.
As part of its proposals, Halliburton said it would divest
its expandable liner hangers business, part of its completion
and production division, after previously announced
divestitures – fixed cutter and roller cone drill
bits, directional drilling and logging-while-drilling
(LWD)/measurement-while-drilling (MWD) – were not
Baker Hughes, meanwhile, said it planned to divest its core
completions business, which comprises packers, flow control
tools, subsurface safety systems, intelligent well systems,
permanent monitoring, sand control tools and control
Divestments proposals appease no one
According to US Attorney General Loretta Lynch, however, the
takeover proposal by the two companies diminishes competition
in 23 products or services essential to energy production,
reducing supply for many customers in the oilfield sector to a
"Halliburton and Baker Hughes’ proposals for
divestiture fail to address our concerns, the transaction is
risky and complicated and puts too many markets at risk," Lynch
said during the conference call.
During the conference, both Lynch and Baer described the
proposal as risky, complicated and piecemeal with both
companies failing to offer any specifics on the proposed
According to the DOJ, the businesses to be sold off by
Halliburton would retain the more valuable assets from either
company, only selling off less significant assets to one or
more third parties, failing to recreate the substantial
competition that currently exists between the two rivals.
Baer noted that over 90% of Halliburton’s
revenues come from products also sold by Baker Hughes, while
Baker Hughes competes with Halliburton for 90% of its revenue.
And, together with the largest US oilfield services provider
Schlumberger Ltd., the two companies would account forover 90%
of supply in some US sectors should a merger go ahead.
"Our lawsuit should surprise no one, least of all these two
companies," Baer said, adding that both were aware of the risky
nature of the venture and went forward regardless. "We have
made the decision they knew we were leaning towards."
While the DOJ took into account the current situation in the
oilfield sector, where low prices and oversupply have led to a
huge y-o-y drop in drilling activity and a subsequent drop in
demand for oilfield services demand, Baer noted the cyclical
nature of the industry adding that low activity was not an
excuse for anticompetitive measures.
Eliminating the competition
The DOJ also expressed concerns that a merger would reduce
innovation in the oilfield services industry, saying that
healthy competition between Halliburton, Baker Hughes and
Schlumberger propelled the development of more efficient
drilling methods and kept US energy prices low.
"Halliburton and Baker Hughes are two of the three largest
integrated oilfield service companies across the globe, and
they compete to invent and sell products and services that are
critical to energy exploration and production. We need to
maintain meaningful competition in this important sector of our
economy," Baer said.
The transaction, Baer explained, would effectively eliminate
Baker Hughes as a formidable competitor and replace it with a
much weaker company, not only in the US but in terms of
In addition to working with the DOJ, Halliburton and Baker
Hughes have also been attempting to appease European and
Brazilian antitrust authorities. While the DOJ said it did not
know what decisions other jurisdictions would take, Baer said
the authorities had been working together, hinting that a
similar decision could be forthcoming.
Despite receiving unconditional clearance in Canada,
Kazakhstan, South Africa and Turkey, the acquisition has yet to
receive approval from any competition authority, including the
European Commission, which in January opened an
in-depth investigation into the deal.
While no one at Baker Hughes or Halliburton was immediately
available to speak to IM, the companies
said in a joint statement that they plan to "vigorously contest
the DOJ’s effort to block their pending
"The proposed merger of Halliburton and Baker Hughes is
pro-competitive and will allow the companies’
customers to benefit from a more flexible, innovative and
efficient oilfield services company. The transaction will
provide customers with access to high quality and more
efficient products and services, and an opportunity to reduce
their cost per barrel of oil equivalent," the statement
Halliburton and Baker Hughes once again emphasised their
proposed divestments, describing them as sufficient to address
the DOJ’s competitive concerns, and said they plan
to demonstrate the DOJ underestimated the highly competitive
nature of the oilfield services sector.
"Halliburton and Baker Hughes look forward to a full,
impartial judicial review of the pending transaction, including
the sufficiency of the proposed divestitures," they said.
Responding to the news that the companies would contest the
decision, Baer said they were entitled to do so and that the
DOJ "will join issue on that in court", which will reinforce
the message that anticompetitive measures would not be
"There are some deals that are so risky and anticompetitive
that they should never have made it out of the boardroom," Baer
said. "This falls squarely in that category."