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Halliburton and Baker Hughes scrap $28 billion merger

The Baker Hughes and Halliburton complexes in Dickinson are across the street from each other, as shown in this file photo. The international oilfield services providers announced the termination of their $28 billion merger deal on Sunday after opposition from U.S. and European antitrust regulators. (Dustin Monke / The Dickinson Press)
Oilfield services provider Halliburton Co. and smaller rival Baker Hughes Inc. announced the termination of their $28 billion merger deal on Sunday after opposition from U.S. and European antitrust regulators.

The tie-up would have brought together the world's No. 2 and No. 3 oil services companies, raising concerns it would result in higher prices in the sector. It is the latest example of a large merger deal failing to make it to the finish line because of antitrust hurdles.

"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," said Dave Lesar, chief executive of Halliburton.

The contract governing Halliburton's cash-and-stock acquisition of Baker Hughes, which was valued at $34.6 billion when it was announced in November 2014, and is now worth about $28 billion, expired on Saturday without an agreement by the companies to extend it, Reuters reported earlier on Sunday, citing a person familiar with the matter.

Halliburton will pay Baker Hughes a $3.5 billion breakup fee by Wednesday as a result of the deal falling apart.

Baker Hughes sought to reassure investors on Monday by announcing a $2.5 billion plan to buy back stock and pay down debt, using the breakup fee it will receive following the collapse of its long-stalled takeover by fellow oilfield services provider Halliburton.

Now each company must map out a strategy to thrive on its own. Both had hoped the merger would help them weather the worst oil price crash in a generation, which has caused hundreds of thousands of layoffs across the industry.

Wall Street analysts said Halliburton should be in better shape than Baker Hughes but praised Baker Hughes' plan to cut annual costs by some $500 million in an oversupplied market while repurchasing shares.

"(This) equates to meaningful upside potential to earnings estimates in 2016 and 2017" for Baker Hughes, UBS analyst Angeline Sedita said in a note to clients.

The U.S. Justice Department filed a lawsuit last month to stop the merger, arguing it would leave only two dominant suppliers in 20 business lines in the global well drilling and oil construction services industry, with Schlumberger NV being the other.

"The companies' decision to abandon this transaction -- which would have left many oilfield service markets in the hands of a duopoly -- is a victory for the U.S. economy and for all Americans," U.S. Attorney General Loretta Lynch said in a statement on Sunday.

The European Commission also previously expressed concerns that the deal might reduce competition and innovation.

The Justice Department and Federal Trade Commission, which enforce U.S. antitrust law, have filed lawsuits to stop an unusually high number of deals in the past 18 months. Lynch said last month that the number of big and complex deals being proposed made it "a unique moment in antitrust enforcement."

The collapse of Halliburton's acquisition of Baker Hughes comes as both companies struggle to cope with the impact that lower energy prices are having on their clients.

Last week, Baker Hughes reported a bigger-than-expected first-quarter loss and warned that the rig count globally would drop steadily through the end of the year because of fewer new projects.

Halliburton said last month it cut more than 6,000 jobs in the first quarter as revenue slumped 40.4 percent and it took a $2.1 billion restructuring charge mainly for severance costs and asset write-offs.

In a separate regulatory filing on Monday, Baker Hughes said it had cut 2,000 more jobs in the first quarter, adding to worldwide reductions of 18,000 last year. The company had about 43,000 employees as of Dec. 31.

Baker Hughes said on Wednesday that it recorded after-tax "merger-retained" costs of $110 million in the first quarter, leading to a bigger net loss for the period. The Houston-based company also said then that it was limiting its exposure to the unprofitable onshore pressure pumping business in North America.

Halliburton, which will release its first-quarter results on Tuesday, said on April 22 that revenue for the period slumped 40 percent.

Shares of Baker Hughes have fallen 25 percent since the merger deal was announced in November 2014. Halliburton stock declined more than 19 percent in that time.

The merger's cancellation also represents a blow to the investment bankers who advised the companies, as their fee, typically in the range of a percentage point of a deal's value, is largely predicated upon the transaction being completed.

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