After strong opposition from the current administration, the oil field services companies Halliburton Company (NYSE: HAL) and Baker Hughes called off their multibillion dollar merger deal, according to a reliable source. Halliburton is now required to give payment to a breakup fee of $3.5 billion latest by Wednesday.
Due to the protests of the anti-trust regulators from the United States and Europe, the agreement expired on Saturday. The CEO of Halliburton Mr. David J. Lesar communicated his disappointment, and said that the merger deal’s termination appears to be the best move, given the protests from regulators and the present conditions in the market.
Ever since the merger was announced, the deal has been bombarded with protests over expectation that this will lead to higher prices in the oil service industry. The reason behind this is that Halliburton and Baker Hughes currently stand as the second and third largest oil service providers and would create a monopoly after the completion of the deal.
In the previous week, Baker Hughes reported its earnings results for the first quarter, in which it posted greater-than-anticipated losses. In addition, the firm also warned that the global oil rig count might inch lower by the end of 2016, as businesses fall short of contracts coming their way.
Anti-trust regulators have applauded the move to call off the merger deal. According to US Attorney General Loretta Lynch, “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.”
Just last month, the US Department of Justice has filed a lawsuit demanding to call off the deal. The Department of Justice asserted that after the transaction, only a number of dominant suppliers would be left in the international well drilling scenario.
Just like its US counterparts, the anti-trust regulators in Europe have also laid various obstacles in front of Halliburton, hindering it to finally close the merger deal. The EU anti-trust bodies halted their merger investigations in the month of March, which happened to be the 3rd time that the probes were stopped. Regardless of repeated assurances, Halliburton Company was not able to provide enough information, which ultimately resulted in the stopping of probes.
There were worries regarding the minimized competition within the industry after the deal. The industry only has four industry players, and competition can therefore be considered as already limited. After the merger deal, the number of industry players will be further trimmed down to three—including oil services providers Schlumberger Limited (NYSE: SLB) and Weatherford International Plc. (NYSE: WFT).
The termination of the deal did not come as a surprise to the industry as a whole, since there were already a lot of hurdles surrounding the merger. On the other hand, the termination of the deal came as a blow to Credit Suisse Group and Goldman Sachs who advised the two companies, as their fee which was computed on the deal’s value largely depended on the merger’s completion.