'Unfixable' Halliburton Bid Felled by Global Scrutiny

(Bloomberg) - Halliburton Co.’s “unfixable” plan to merge with Baker Hughes Inc. finally collapsed under the weight of worldwide antitrust opposition.

The duo called off their $28 billion deal on Sunday after more than a year trying to get approval from regulators in the U.S., European Union, Brazil and Australia. The companies ultimately failed to overcome concerns shared by watchdogs the world over that the deal would reduce choice in oilfield services, ultimately running a risk of higher oil and gas prices for consumers.

Halliburton announced the Baker Hughes takeover in November 2014 in a bid to better compete against industry leader Schlumberger Ltd. But as the tussle for regulatory approval turned into a war of attrition, shares of Halliburton and Baker Hughes declined amid the worst oil slump in a generation, reducing the deal’s value from $34.6 billion when it was announced.

The Halliburton-Baker Hughes transaction is one of several "daring deals” that are “very challenging when it comes to concessions" said Denis Fosselard, a lawyer at Ashurst LLP in Brussels. "It may mean they didn’t think well enough ahead of time" of what to offer as "they seemed to have a lot of issues in deciding the assets to sell."

Energy Prices

While the combination involved two U.S. companies, their role as the global no. 2 and no. 3 providers of equipment for oil and gas exploration and production required approval internationally. Such services are crucial to "ensuring competitive energy prices for consumers and companies across the EU," the bloc’s Competition Commissioner Margrethe Vestager said Monday.

But it was at home in the U.S., where regulators were most vocal about the proposed deal’s impact on competition.

The U.S. Justice Department’s then-antitrust chief, Bill Baer, who is now the department’s No. 3 official, said last month that the problems were "unfixable" for a transaction critical to the American economy. Investigators in the country identified 23 markets where they said the transaction would create a duopoly with market leader Schlumberger.

The EU cited concerns in more than 30 products and services when it opened an in-depth probe into the tie-up in January. The EU echoed fears that only Schlumberger would rival the merged company in offering integrated services and any new supplier would need to expand on a large number of fronts to compete on tenders.

In Brazil, state-owned oil firm Petrobras in March told antitrust regulator CADE about its competition concerns in a number of service lines, CTFN said, citing an unidentified person familiar. CADE challenged the deal in court last year, citing possible price increases and less innovation that might harm the country’s oil and gas industry.

Australian Concerns

Australia’s competition watchdog raised concerns in October that the merger might shrink the number of suppliers for oilfield goods and services, particularly offshore drilling. It said the proposed acquisition "may create conditions that would facilitate coordinated behavior" in the oil-services market.

To appease regulators, Halliburton had offered to sell several businesses. Among them were its drill-bits unit, which makes the tips of drills for digging wells, and the drilling-services arm, which operates as Sperry Drilling and uses data to track and steer the direction of drill bits. It also agreed to sell Baker’s so-called core completions business, which provides equipment for controlling the flow of oil as it is readied for production.

That wasn’t enough. Baer said the proposal was a "grab bag" of businesses that was "so complicated and convoluted" it would turn the U.S. antitrust division into an energy-sector regulator.

To contact the reporters on this story: Aoife White in Brussels at awhite62@bloomberg.net ;Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net To contact the editors responsible for this story: Peter Chapman at pchapman10@bloomberg.net David S. Joachim

Copyright 2016 Bloomberg News.

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