HOUSTON – Halliburton Co.’s agreed-to purchase of Baker Hughes raises an unprecedented level of antitrust concerns and the oil field service company’s proposed remedies would still leave oil-equipment markets far less competitive, the Justice Department said Wednesday.
“This deal is unfixable,” Bill Baer, assistant attorney general for the Justice Department’s antitrust division, said during a conference call. “I’ve seen a lot of problematic mergers in my time, but I’ve never seen one that poses so many antitrust problems in so many markets.”
The Justice Department filed papers in a Delaware federal court on Wednesday morning to block Halliburton’s acquisition of Baker Hughes, the largest oil field services acquisition ever proposed. It warned the deal could hamper competition in 23 separate oil-equipment markets, hiking prices and hampering the market’s creative forces often stirred by fierce rivalries.
Halliburton and Baker Hughes, both based in Houston, said they would vigorously contest the suit.
The combination of the world’s second and third-biggest oil field service companies was first proposed as a $35 billion deal in November 2014 and has been tied up in reviews by U.S. regulators and antitrust authorities in Europe, Mexico, Brazil and Australia for about a year, and an antitrust suit could take years to resolve.
The field of competitors has been decimated in recent months. The collapse of crude prices since the Halliburton’s deal was announced has left much of the oil field service industry in financial ruin, with those firms cutting the vast bulk of the 320,000 global oil-industry jobs lost in the past year and a half.
The oil bust “hasn’t helped their cause,” said Rob Desai, an analyst at Edward Jones, who now pegs the chances of Halliburton successfully absorbing Baker Hughes at less than 50 percent.
In its complaint, federal trustbusters said Halliburton collected 90 percent of its revenues from products and services also offered by its smaller rivals. In the United States, a merged Halliburton-Baker Hughes would share control of more than 90 percent of eight of those markets, including offshore drilling fluids, safety valves offshore cementing, with Schlumberger.
In nine other markets, including certain kinds of drill bits and sensors that collect drilling data, Schlumberger and the merged companies would have more than 70 percent of the markets. That would “turn many of those markets into non-competitive duopolies,” U.S. Attorney General Loretta Lynch said during the call.
But the Justice Department’s concerns go beyond market-share numbers, saying the big three companies are the only suppliers qualified to bid on the industry’s most challenging deep-water projects, where oil companies face high pressures and high temperatures.
Baer said the enforcement agency held off on filing a suit against the companies for 17 months as it looked carefully at Halliburton’s proposals to sell off businesses worth at least $7.5 billion in revenue to calm antitrust fears and make room for its smaller rival. But Halliburton failed to convince the regulators.
The products and services Halliburton proposed to sell were not full business units, but rather piecemeal collections of assets from various business lines, leaving key facilities, personnel, contracts, intellectual property and research and development in the hands of Halliburton, while the buyers of its assets are left at a competitive disadvantage.
“It’s like selling part of the building while removing the heating system, the electrical wiring and some of the foundation,” Baer said. “What Halliburton proposes to sell off or license utterly fails to maintain today’s competitive dynamic. Halliburton mostly would keep the more successful product lines and sell assets related to the less successful products to some third party.”
Halliburton, Baer said, has proposed to keep some of the personnel and other infrastructure that support the business it plans to sell off piecemeal to other companies. It would also hold back key intellectual property, not immediately providing contracts and licenses to the asset buyers, leaving the buyers to negotiate complex new agreements with customers who are not compelled to transfer their business to smaller, weaker rivals, Baer said.
The Justice Department said as part of Halliburton’s proposed remedy, the company would give up less than half of the 400 facilities around the world it relies on for the assets it plans to sell.
In a joint statement Wednesday, Halliburton and Baker Hughes said they’ll “vigorously” contest the lawsuit.
“The companies believe that the DOJ is wrong in its assessment of the transaction and that its action is counterproductive, especially in the context of the challenges the U.S. and global energy industry are currently experiencing,” the companies said in a written statement.
Several oil-producing companies were unavailable for comment on Wednesday.
Read the full complaint below.