Delay for the Halliburton-Baker Hughes Merger
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Just as everybody was starting to wonder if the merger between the second and third largest oil field service companies in the United States was ever going to make it to the next step, Halliburton and Baker Hughes announced a delay in the process. The two companies are now giving antitrust regulators at the U.S. Department of Justice 90 extra days to look into the proposed merger.
It wasn't exactly a shock when the $34.6 billion merger was announced last November. We'd known these types of mergers were likely to start happening since crude oil prices began to tumble in June 2014 in response to a glut of oil hitting the world market. It was a lone shareholder that actually pitched the idea of the merger to Halliburton CEO Dave Lesar in January 2014, according to Security and Exchange Commission filings on the deal. The agreement was approved by the shareholders of both companies in the spring but the deal still had to be cleared by the federal antitrust regulators before it could really move forward.
Still, there were questions about how the two massive Houston-based companies would actually combine without turning into an entity that controls too much of the market to, well, be legal. Halliburton previously announced that the company would sell off about $7.5 billion worth of businesses to make the deal more palatable to regulators, but we won't know until the DOJ issues its report whether that particular chunk of businesses will shift things around enough to ensure that, in its newly formed configuration as the second largest oil field services company in the world (behind Schlumberger), the company won't be too big.
Meanwhile, the big question has been why the DOJ still hasn't issued its report. Federal regulators were supposed to send out the review on the proposed merger between these two massive companies by mid-summer, but the analysis still hasn't dropped.
As of June, the lack of that report seemed to be triggering an ominous reaction on Wall Street, as we recently reported. Oilpro, an industry insider newsletter, noted in a recent article that Baker Hughes's stock has been "trading at a discount" to the Halliburton offer since January and the gap has continued to widen over the past few months. That's actually normal — stock for the company that is about to be essentially gobbled is usually being traded at a cut rate after a merger is announced — but the Baker Hughes stock should have started to increase in value as we got closer to the merger. That hasn't happened. Reading the stock market can be like trying to read tea leaves, but that was the first sign that everything wasn't going swimmingly in big oil field service company merger-land. Media reps for both companies said they couldn't comment on the status of the merger at the time.
But then on Friday Halliburton issued a release announcing that the companies were giving the federal trust-busters extra time to review the proposed merger. Now the Halliburton and Baker Hughes review process has been extended through November 25, giving the feds at least 90 extra days to decide if the deal will or will not violate antitrust laws. "Timing agreements are often entered into in connection with large, complex transactions, and provide the DOJ additional time to review responses to its second requests," the short and to-the-point release states. The window to close the deal has now been extended to December 1.