The EU Puts Another Snag in the Halliburton/Baker Hughes Merger

Now there's been another hitch in the proposed merger between Halliburton and Baker Hughes. 

Halliburton and Baker Hughes have been trying to get various regulatory entities around the world to give in and let the two companies merge, but the duo — the second- and third-largest oil field services companies in the United States, respectively — have been met with sound disapproval.

The U.S. Justice Department has already shown its own reluctance to sign off on the proposed $34.6 billion merger, a problem that led the two companies to push back the deadline. Now they have until April to get the deal signed, sealed and delivered, but even if that happens, that won't be the last of the hurdles the companies have to clear.

Justice Department regulators are crucial to getting this deal done, according to University of Houston energy economist Ed Hirs, because there won't be any deal at all if the Justice Department doesn't approve the merger. (And since there are antitrust concerns, it's become clear that getting Justice to sign off on this won't be an easy task.) But the two companies also have to contend with other foreign regulators, including the Australian Competition & Consumer Commission, which has already raised questions about the proposed deal, and the European Union, which has already rejected the proposal once.

Halliburton and Baker Hughes reapplied with the EU, but then, for some reason, the companies passed on the chance to offer early concessions to the EU. Halliburton had until midnight Tuesday to propose remedies that would make the EU more comfortable with the idea of the two companies combining and controlling a large portion of the oil field services market, according to Bloomberg. The deadline came and it went without any such offers coming from Halliburton. Now it looks as if EU regulators will be opening up a much more in-depth investigation into the merger, meaning there will be a lot of scrutiny and it's going to take a whole lot of time. 

The EU review adds another layer the companies have to work through to try to close this deal. The Justice Department has continued to maintain that Halliburton and Baker Hughes haven't agreed to sell off enough pieces of each company to make a merger palatable to the antitrust regulators. The companies maintain that the assets they've agreed to sell as part of the deal are “more than sufficient” to take care of the Justice Department's concerns. And now, the EU regulators conducting their probe will most likely take at least until May to come to any decision on the deal, well after the self-imposed April deadline, according to Bloomberg.

Basically, the merger is still in regulatory limbo, and it looks like it will be there for some time, unless the deal just falls apart before that.

And that second option isn't entirely out of the question. There have been signs of uncertainty on the stock market for some time about whether the merger will actually become a reality, as we've previously reported. If it ends up not going through, that will be a body blow to both companies, already hobbled by the oil bust.

On the surface, it looks as if Halliburton will initially come off as the immediate loser since the company will have to pay Baker Hughes $3.5 billion if the deal falls apart. But Baker Hughes will be the true injured party if this doesn't work out. “One of the real concerns if the merger doesn't go through is going to be whether Baker Hughes has been mortally wounded by shaving off profitable businesses and undertaking layoffs in anticipation of a merger coming to fruition. They've been making room for this to happen, so if it falls apart, that's going to be big,” Hirs told us a few weeks ago. It's still true now.

It's possible that Halliburton will step in afterward and simply buy up the pieces of Baker Hughes that it fancies. There have also been rumblings that General Electric is interested in buying a portion of Halliburton, and it's been sniffing around various parts of Baker Hughes and Halliburton that are being offered up for sale. It's possible that GE — a company with a huge amount of cash on its balance sheet that has been buying into the energy industry in the past few years — could at least snap up portions of either company if the merger doesn't go through.

GE also may be the crucial factor in whether or not the merger does get approved — the Justice Department wants Halliburton and Baker Hughes to sell off more than $7 billion in assets before it will approve the merger and has said it would be good if all the assets could be bundled up and sold to one company. Unlike most potential buyers right now, GE actually has the cash to step up and make the purchase. If it does, maybe regulators will finally look kindly on the deal. If GE doesn't, we're betting it will be able to get some pieces of both companies for a good price.

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