European Commission launches Halliburton-Baker Hughes investigation

Regulators with the European Union said they launched the second phase of their investigation into Halliburton’s deal for Baker Hughes on Tuesday, fanning concerns the merger would significantly reduce global competition in the oil field services industry.

The long-awaited move will leave Halliburton fighting antitrust reviews in both the United States and Europe. Officials with the European Commission, the EU’s executive arm, said the probe could last until May 26 — nearly a month past the April 30 deadline for the U.S. Department of Justice’s review.

Halliburton had aimed to close the acquisition, originally valued at $35 billion, by the end of 2015. But the company failed to fully assuage the Justice Department by then — both companies in the deal have offered various proposals for selling business units, worth billions collectively, but so far haven’t satisfied regulators concerned that the combined entity would control too much of the market.

Halliburton and Baker Hughes are the No. 2 and No. 3 oil field services companies in the world, behind only Schlumberger. All three have headquarters in Houston.

Halliburton had relayed updates on talks with the Justice Department to the EU, but never formally outlined a package of divestments to European regulators. Thus, the full investigation followed.

“Halliburton expects to offer a substantial remedies package that it believes will address any substantive competition concerns,” the company said Tuesday in a prepared statement, while reiterating both companies are focused on completing the deal.

European Commission officials said Tuesday that they see “serious potential competition concerns” in more than 30 product and services lines between the two companies. The commission previously had the option of signing off on the deal during a preliminary review period.

“The Commission has to look closely at this proposed takeover to make sure that it would not reduce choice or push up prices for oil and gas exploration and production services in the EU,” Commissioner Margrethe Vestager said in the announcement. “Efficient exploration and production of oil and gas resources within the EU form an important element of our Energy Union strategy in terms of ensuring security of supply.”

The commission noted that only Schlumberger, Halliburton and Baker Hughes offer integrated oil field services solutions in Europe. Reducing that number to two companies “may lead to less choice and potentially higher prices for customers,” the commission stated, and also “could reduce the incentive to innovate, especially given that Halliburton and Baker Hughes currently compete fiercely with each other in developing new products.”

Halliburton would have to pursue the acquisition through litigation if deals are not struck with the regulating bodies. Australia and Brazil also have expressed competition concerns about the merger.

Halliburton has a lot riding on the regulatory review. The deal includes a provision for it to pay Baker Hughes $3.5 billion if the deal fails.