Halliburton and Baker Hughes to scrap merger

By Kasia Patel
Published: Saturday, 21 May 2016

Halliburton to pay $3.5bn break-up fee; working with antitrust authorities since 2014; rig count down affecting associated oilfield minerals

Leading oilfield services firms Baker Hughes Inc. and Halliburton Co. have announced the immediate termination of the merger agreement entered into by the companies in November 2014.

In a joint statement released in May, Halliburton and Baker Hughes reiterated their belief in the merger’s "compelling benefits to shareholders, customers and other stakeholders", describing the ultimate failure to secure regulatory approval for the deal as a "disappointing outcome".

Both Halliburton and Baker Hughes, have been working with antitrust authorities since 2014 – including the US Department of Justice (DOJ) and European and Brazilian antitrust authorities – to propose divestitures ahead of the merger, but failed to gain any regulatory approvals.

Most recently, the DOJ filed a civil antitrust lawsuit at the start of April seeking to block Halliburton’s $34.6bn purchase of Baker Hughes, saying that the transaction could eliminate competition, raise prices and threaten innovation in oilfield services. "There are some deals that are so risky and anticompetitive that they should never have made it out of the boardroom," Bill Baer, the Assistant Attorney General for the DOJ’s Antitrust Division, said during a conference call. "This falls squarely in that category.

"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 US and abroad," Baker Hughes CEO, Martin Craighead, said.

"While disappointing, Halliburton remains strong," Halliburton’s CEO, Dave Lesar, reassured its customers. "We are the execution company – our strategy, technologies and service quality are focused on helping customers maximise production at the lowest cost and driving industry leading growth, margins and returns."

As part of the merger agreement, Halliburton was ordered to pay Baker Hughes a termination fee of $3.5bn by Wednesday, 4 May 2016.

With high technological and financial barriers to entry, the oilfield services market is dominated by only four major players.

Baker Hughes and Halliburton are the second and third largest oilfield service suppliers following only market leader Schlumberger. Weatherford is also a major supplier in the sector. Both Halliburton and Baker Hughes are leading producers and providers of oilfield minerals including bentonite and barite (barytes).

Declining rig count

The US rig count declined once again in April according to the latest figures released by Baker Hughes. 

Baker Hughes reported the worldwide rig count for April 2016 at 1,424, down by 127 from 1,551 in March and down 844 from 2,268 counted in April 2015.

OFM