In a surprise move, oilfield services giants Halliburton and Baker Hughes on May 1 announced that plans for a merger had been terminated. The announcement follows a regulatory review that had threatened the $35 billion deal and resulted in a lawsuit filed by the Justice Department in April.
“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 CEO of Halliburton, said in a May 1 statement.
As part of the termination, Halliburton was required to pay Baker Hughes a $3.5 billion termination fee by May 4.
“Today’s outcome is disappointing because of our strong belief in the vast potential of the business combination to deliver benefits for shareholders, customers and both companies’ employees,” Martin Craighead, Chairman and CEO of Baker Hughes, said. “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. As we turn the page on this chapter, I want to thank our customers for their patience and continued loyalty over the past 18 months. I also want to thank the entire Baker Hughes team for their unwavering dedication and commitment during this process. Baker Hughes is strongly positioned to build on its foundation and heritage as a technology innovator that differentiates for our customers and delivers compelling value to shareholders.”
Officials with the Justice Department had continually raised antitrust concerns since the deal was announced in November 2014. U.S. and European officials believed the deal would have increased prices on affected oilfield services, decreased output and lessened the innovative competition that the industry has recently enjoyed. Declining commodity prices also negatively affected the merger.
“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,” Attorney General Loretta Lynch said in a May 1 statement.
Most analysts believe that each company is well-?positioned to survive the downturn in the industry. Halliburton’s balance sheet shows about $10 billion in cash. Baker Hughes said it will refocus the company’s sales strategy while retaining its core business in the U.S. The company plans to use a portion of the termination fee to buy back up to $1.5 billion in stock.