The proposed $34.6 billion merger between Halliburton and Baker Hughes, the second and third largest oil field services companies in the United States, respectively, has been in the works for more than a year now, but the two Houston-based companies just cannot seem to get this deal done.
Between the scrutiny of U.S. Department of Justice officials, tanking oil prices that have made it increasingly difficult to sell off the assets the companies need to rid themselves of to mollify the concerns of Justice Department antitrust regulators, and a looming self-imposed April deadline, the companies have plenty of hurdles to clear before they even get close to sealing the deal.
Now there's yet another obstacle to contend with: A more intense anti-trust probe from the European Union.
The EU has already rejected the proposed merger once, but the companies quickly re-applied. But then last week Halliburton and Baker Hughes declined to offer early concessions to the EU that might have made the idea of two large oil field services companies combining a little more palatable to the EU's antitrust arm. As we previously reported, the move made it highly likely that the EU would respond by opening up a much more in-depth investigation to the deal.
Which is exactly what the EU has done. The European Commission, the EU's top antitrust authority stated on Tuesday that there are concerns about this deal since the two companies “seem to be close competitors, both in terms of tenders and in innovation,” according to the European Commission. There are currently four global oil field services companies working in the EU, Schlumberger, the largest one, Halliburton, Baker Hughes and, to a lesser extent, Weatherford. European Commission investigators appear to be very cautious about this proposed merger since it would do away of two of the four companies.
The European Commission says in a statement that it has also found “serious potential competition concerns” in more than 30 product and service lines, both for offshore and onshore businesses. There's also a problem with the fact that Halliburton and Baker Hughes, along with Schlumberger, are the only three companies that provide integrated services, since the companies do everything from supplying tools to working in drilling, well completion and production, according to the Wall Street Journal. If the two companies pair up, that will leave only Schlumberger as a competitor, a situation that could "lead to less choice and potentially higher prices for customers,” according to a statement from the European Commission.
"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. 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," Commissioner Margrethe Vestager, in charge of competition policy, stated.
Now, the EU has until May 26 to make a final decision on the deal. Basically, they have a lot of questions and they're going to spend 90 working days answering them. However, the concerns of European Commission investigators don't mean that the deal itself is finito. If the commissioners find their issues are valid, the two companies can offer concessions and can agree to sell off parts of the companies to make the merger work.
Still, this is rough news for Halliburton and Baker Hughes since the two companies have already delayed their self-imposed deadline a couple of times because they've had trouble getting the Justice Department to sign off on the merger. Just last month they pushed back the deadline to April 30, but it seems likely that it will be kind of tricky to finish combining the two companies when the EU won't issue its decision until a month later.
We've asked Halliburton officials how they're going to handle the EU's deeper probe and whether it will in fact force them to change their timeline again, but haven't heard back yet. We'll update as soon as we do.
The company did however issue a statement on the EU development on behalf of both companies. The release noted that the European Commission's decision "is a normal step in the Commission’s review process, and the views expressed by the Commission at this stage are preliminary only."
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They also underlined the fact that not every country has shut down their merger idea. No, really. In fact they've been given regulatory clearances in Canada, Colombia, Ecuador, Kazakhstan, South Africa and Turkey so far. (The release didn't mention that this is their second go-around with the EU or that the Australia Competition And Consumer Commission has raised questions about this market share stuff too, go figure.)
They ended on a positive note, or at least by sounding as optimistic as one can sound when stuck acknowledging that the deal that was supposed to help these two companies survive the oil bust increasingly appears to be stuck in regulatory limbo. "Halliburton and Baker Hughes remain focused on completing the regulatory approval process and closing the transaction in order to begin realizing the benefits of the proposed combination for shareholders, customers, employees and other stakeholders," the release stated.
Meanwhile, both companies have been cutting the fat in every way possible as oil prices continue to slide, dipping below $30 a barrel on Tuesday for the first time since 2003. It's hard to tell how this thing will ultimately play out or if these two companies will ever get to finally couple up, and as we've mentioned before, this deal falling apart will be difficult for both of them since Halliburton will have to pay Baker Hughes $3.5 billion while Baker Hughes will have to figure out how to survive without the pairing with Halliburton that it had been banking on. One thing is clear though: it will never happen at all if they can't persuade the big regulators that this thing won't give them the chops to completely destroy the competition.
And even if they talk the European Union into being on board with the merger, they've still got the Justice Department to contend with, and so far the Justice Department antitrust regulators haven't exactly been jumping up and down about the proposal.