Halliburton Acquisition of Baker Hughes Faces a Legal Obstacle

By Staff Writer

Apr 07, 2016 04:26 AM EDT

U.S. Department of Justice has prepared a lawsuit to block Halliburton acquisition of Baker Hughes, based on antitrust law. Halliburton took over Baker Hughes in November 2014 on a $3.5 billion deal.

Halliburton acquired its oil field service company's rival in 2014 and before the merger, the Houston-based company was required to divest over $5 billion of its assets. Bloomberg reported that the Justice Department said that the merger "threatens to substantially lessen competition in numerous markets."

Both companies are industry leaders in the oil field service, with Halliburton is the second largest oil field service company and Baker Hughest is the third largest. Merger between the companies will create the oil field service giant behind Schlumberger. Justice Department argued that the merger violated antitrust laws by eliminating competition between the firms.

Wall Street Journal reported that if the merger falters, Halliburton must pay $3.5 billion break-fee to Baker Hughes, its intended partner. That is equal to more than 10% of its market capitalization of $30 billion.

Reuters reported that Justice Department worried on two areas regarding the merger. The first one is the divested drilling technology businesses would go to small companies. Those companies are not up to par to compete with either Halliburton or Baker Hughes.

The second concern is that the merger will stop innovation in oil field technology. Since merger between Halliburton and Baker Hughes would make industry leaders to have less incentive to continue innovating. Reuters also reported the new company would create a dominant leader in hydraulic fracturing or fracking technology.

Halliburton is one of the oldest American company in the oil field service. Founded in 1919 in Oklahoma, the company is now headquartered in North Houston and a leader in the fracking technology.

Fracking is the oil drilling technique which injecting a high-pressure water mixed with sands and thickening agent into the rock to release the gas. Fracking is a controversial method because of increasing seismic activities during the drilling process. Nevertheless, the method has more economic benefit.

Baker Hughes can track its history from the Hughes Tool Company in 1908 by Howard Hughes. After a series of merger and acquisition between oil service companies for decades have made what is known as Baker Hughes today. The company is famous for its agressiveness in developing new oilfield technologies.

Halliburton proposed an acquisition deal to Baker Hughes in 2014 in a $35 billion deal. The deal is waiting for regulatory approval from several countries. Along with United States, European Union, Brazil and regulators from other countries have concern the merger will affect the competition level and prices.

U.S. Department of Justice has prepared lawsuit to block Halliburton acquisition on Baker Hughes. The deal is also waiting for regulatory approvals from European Union and Brazil.

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