Merger of oil giants officially off

Halliburton, Baker Hughes ditch deal after failing to gain antitrust approval

Halliburton and Baker Hughes abandoned their merger Sunday after the deal once valued at $35 billion failed to gain the blessing of antitrust officials, setting the stage for more layoffs at the Houston com- panies as they resume their competition amid the continuing oil slump.

The chief executives of both energy services firms called the failure to complete the merger “disappointing.”

“The challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action,” Halliburton CEO Dave Lesar said in a statement.

The planned merger was “an extremely complex, global transaction,” Baker Hughes CEO Martin Craighead said in his statement. “Ultimately,” he said “a solution could not be found to satisfy the antitrust concerns of regulators, both in the United States and abroad.”

They resume their competition amid the continuing oil slump.

Under the terms of the merger agreement, Halliburton will pay Baker Hughes a $3.5 billion breakup fee even as it continues to struggle in the extended

oil bust, recently reporting a steep decline in revenues and thousands of job cuts. But Halliburton, which borrowed $7.5 billion to help finance the acquisition, is flush with cash and should have no trouble covering the bill, analysts said.

Halliburton is the world’s second-largest energy services firm and Baker Hughes is the third. When the companies agreed to merge in November 2014, executives hoped to create a firm with the size and scale to compete with Schlumberger, the world’s biggest energy services company. But antitrust officials said the combined company would control too large a share of the market and have too much power over pricing, particularly in the development of North American shale fields. The Justice Department filed suit to block deal on April 6.

In a statement, U.S. Attorney General Loretta Lynch hailed the breakup as the end of “duopoly” in energy services and “a victory for the U.S. economy and for all Americans,” David Gelfand, deputy assistant attorney general in the antitrust division, said merger “would have raised prices, decreased output and lessened innovation in at least 23 oilfield products and services critical to the nation’s energy supply.”

The decision to give up on the merger was widely anticipated as it grew increasingly clear that the deal would not clear antitrust objections before a deadline Saturday. Both companies began preparing in recent weeks to resume operations as separate companies and competitors, analysts said. In the short term, the collapse of the deal is expected to lead to hundreds more layoffs as the companies shutter businesses and slash operations to reap savings they might have gained through the merger.

Halliburton, for example, held onto office support staff — lawyers, accountants and middle managers — and some assets in the field that it would have needed to manage a larger business. Baker Hughes also kept its businesses larger than it would otherwise would have been, estimating that it carried an extra $110 million in costs in the first quarter to comply with the terms of the deal.

Analysts expect the companies to soon make cuts in these areas.

Halliburton and Baker Hughes are two of Houston’s — and the industry’s — most storied companies. Their histories reach back to the early days of the Texas oil rush in the first decades of the 20th century, each firm introducing new products, services and innovations that helped make Texas and Houston the energy capital of the world. Halliburton’s red coveralls and Baker Hughes’ blue ones have been staples in the oil patch for decades.

At Halliburton, the company’s core businesses were already widely considered to be among the strongest in the industry. The company has spent the past decade building the premier hydraulic fracturing fleet in the U.S., and analysts say it can pump water and sand into shale formations more efficiently than any other in the industry.

Baker Hughes doesn’t have the same kind of marquee business to lean on, and remains in the unenviable position of being the third in the market. But analysts say the company could invest the breakup fee in fresh equipment to make its fracking business competitive by the time oil prices recover.

Baker Hughes might also become a target of a new buyer, analysts said. One major investor, the hedge fund Value Act Capital Management, has proposed that Baker Hughes break itself up and sell off its various businesses, according to court documents in a lawsuit.

Halliburton last Friday delayed its earnings until Tuesday, but reported that its first-quarter revenue fell to $4.2 billion from $7.05 billion from the same period in 2015, and it cut 6,000 jobs in the first three months of the year. Baker Hughes reported its first-quarter revenue plunged more than 40 percent, to $2.7 billion from $4.6 billion in 2015, and its losses widened to $981 million. Both companies have tried to stop the bleeding by cutting costs and jobs as dramatically as revenues have fallen.