Halliburton and Baker Hughes ditch $34bn oil services merger

The two US firms have abandoned plans to create a powerful rival to the world number one Schlumberger amid anti-trust concerns from regulators.

The US oil services majors Halliburton and Baker Hughes have called off their proposed US$34 billion merger amid resistance from anti-trust officials.

The deal, revealed in November 2014, foresaw a $34.6bn takeover by Halliburton of its smaller rival, creating a titan to take on the global industry leader Schlumberger.

“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 Halliburton’s chairman and chief executive, Dave Lesar.

The aborted merger had raised significant competition concerns in Europe, the EU commissioner Margrethe Vestager said on Monday.

The commission said it took note of the companies’ announcement that they had abandoned their proposed merger, adding this followed concerns by competition agencies around the world, including the commission.

“In this case, based on the commission’s in-depth analysis, the transaction raised competition concerns on a very large number of markets related to oilfield services provided to oil and gas exploration and production companies in the EEA [European Economic Area],” said Ms Vestager, who is in charge of competition.

“In this regard, a number of customers contacted us to raise issues with the proposed transaction,” she continued.

She added that the investigation had been carried out in close cooperation with a number of competition agencies such as the US department of justice, the Brazilian Cade and the Australian ACCC.

This month, US anti-trust officials filed suit to block the proposed merger, agreed in response to plunging oil prices, saying it would eliminate competition, raise prices and reduce innovation in the oil services business.

The justice department said the transaction would eliminate head-to-head competition in markets for 23 products or services, creating a virtual duopoly for key oil services such as offshore well completions and onshore and offshore cementing.

Halliburton and Baker Hughes said at the time they would “vigorously contest” the case.

Martin Craighead, the chairman and chief executive Baker Hughes called the termination “disappointing”.

“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,” he said.

Halliburton will pay Baker Hughes a termination fee of $3.5bn by Wednesday, it said.

Baker Hughes said it planned to buy back $1.5bn of shares and $1bn of debt, using the break-up fee it will receive.

It also said it also planned to refinance its $2.5bn credit facility, which expires in September 2016.

Baker Hughes, the world’s third-largest oil services provider said an initial phase of cost-cutting was expected to result in $500 million of annualised savings by the end of 2016. Restructuring will focus on well construction, including drilling services, drill bits and completions, and production services, including artificial lift and production chemicals, Mr Craighead said.

“More than ever, our customers need to lower their costs and maximise production,” he said.

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