Halliburton and Baker Hughes scrap $28b merger

Idle trucks and oil production equipment is seen in a Halliburton yard in Williston, North Dakota April 30, 2016. Picture taken April 30, 2016. REUTERS/Andrew Cullen

Oilfield services provider Halliburton Co and smaller rival Baker Hughes Inc announced the termination of their $28 billion merger deal on Sunday after opposition from U.S. and European antitrust regulators.

The tie-up would have brought together the world’s No. 2 and No. 3 oil services companies, raising concerns it would result in higher prices in the sector. It is the latest example of a largemerger deal failing to make it to the finish line because of antitrust hurdles.

“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, chief executive of Halliburton.

The contract governing Halliburton‘s cash-and-stock acquisition of Baker Hughes, which was valued at $34.6 billion when it was announced in November 2014, and is now worth about $28 billion, expired on Saturday without an agreement by the companies to extend it, Reuters reported earlier on Sunday, citing a person familiar with the matter.

Halliburton will pay Baker Hughes a $3.5 billion breakup fee by Wednesday as a result of the deal falling apart.

The U.S. Justice Department filed a lawsuit last month to stop the merger, arguing it would leave only two dominant suppliers in 20 business lines in the global well drilling and oil construction services industry, with Schlumberger NV being the other.

“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,” U.S. Attorney General Loretta Lynch said in a statement on Sunday.

The European Commission also previously expressed concerns that the deal might reduce competition and innovation.

The Justice Department and Federal Trade Commission, which enforce U.S. antitrust law, have filed lawsuits to stop an unusually high number of deals in the past 18 months. Lynch said last month that the number of big and complex deals being proposed made it “a unique moment in antitrust enforcement.”

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.

Also read:

Australia flags concerns on $35b Halliburton bid for Baker Hughes

Mega deals morph into mega problems for Wall Street

Reuters

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In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.