Halliburton and Baker Hughes, the world’s second- and third-largest oilfield services companies, announced plans to merge in November 2014.
Oilfield services are integral in extracting oil and natural gas from below ground. They include drilling, well construction, fracking, and numerous oilfield measurement and evaluation services. Halliburton and Baker Hughes are two of only three firms capable of performing the full range of these services, as well as two of only three companies able to perform this work in the most challenging environments, from the deepwater Gulf of Mexico to the Arctic. The transaction, if unchallenged, would have resulted in a duopoly in numerous markets.
The Division sued to block the merger in April 2016 in the U.S. District Court for the District of Delaware. The complaint described the competitive harm threatened by the merger, namely the loss of head-to-head competition between Halliburton and Baker Hughes in 23 different product markets, and explained the benefits that this competition brings in the form of lower prices, better products and services, and innovation.
Halliburton made successive proposals to divest a mix of assets from the two companies in an attempt to remedy the many concerns raised by the Division and by antitrust authorities in other countries. However, the proposals failed fully to address the substantial competitive harm posed by the transaction. They did not include complete business units, omitted many customer contracts, critical assets, and employees, mostly involved the less successful of the parties’ competing product lines, and would have necessitated extensive ongoing commercial entanglements between Halliburton and any future buyer. The proposed remedies also would have imposed an unprecedented burden on the Court and the Division because they would have required oversight of the global separation and transfer of thousands of assets and employees, as well as the performance of numerous service agreements for years into the future. They were rejected by the Division as inadequate.
On May 1, shortly after the Division filed its complaint, Baker Hughes exercised its contractual right to terminate the merger agreement and collected a $3.5 billion breakup fee from Halliburton, effectively abandoning the transaction and preserving the competitive status quo.