The blockbuster merger between the second and third largest oilfield services companies is now officially dead. On May 1, Halliburton and Baker Hughes announced the termination of the merger agreement, as the companies are unable to overcome the objections of federal antitrust regulators.
“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,” Dave Lesar, Chairman and Chief Executive Officer of Halliburton, said in a statement. Related: Massive Oil Theft By Pirates Costs Nigeria $1.5 Billion Every Month
The $35 billion merger faced opposition not just from American regulators, but also in Europe. Regulators argued that the merger would have stifled competition in the oilfield services sector. The U.S. Justice Department filed a lawsuit against the transaction in early April, in which it cited 23 product lines that would see competition eliminated if the deal went through. Halliburton and Baker Hughes anticipated regulatory challenges, but had maintained confidence that they could be overcome.
“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,” said, Martin Craighead, Chairman and Chief Executive Officer of Baker Hughes.
The U.S. Attorney General Loretta Lynch said the collapse of the deal was “a victory for the U.S. economy and for all Americans.” Related: What Do Brent Spreads Know That We Don’t
There is a silver lining in the termination of the merger, at least for Baker Hughes: Halliburton will have to pay Baker Hughes a $3.5 billion breakup fee, which it agreed to when the companies made the deal back in 2014. That will give Baker Hughes some cash to retool and move forward.
Now with the deal off the table, analyst expect both companies to begin more severe spending cuts as a way of restructuring. With the merger pending, both companies were unable to make necessary cuts in the low oil price environment, so now spending reductions and asset sales are likely.
By Charles Kennedy of Oilprice.com
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