Halliburton and Baker Hughes abandon $28bn tie-up

The energy group Halliburton has abandoned its $28bn pursuit of rival Baker Hughes after antitrust authorities moved to block the deal, leaving it to pay a $3.5bn termination fee as part of a provision agreed during the takeover talks.

The termination of Halliburton’s takeover of its Texan rival, which would have brought together the world’s second and third-largest oil services companies, comes just weeks after the US government sued to prevent what was set to be one of the largest deals in the energy sector in recent years. It is the latest megadeal to collapse this year as a result of government intervention.

“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 US economy and for all Americans,” said Loretta Lynch, US attorney-general, in a statement from the Department of Justice.

Authorities complained the combination would reduce competition to an unacceptable degree, distort energy markets and ultimately hurt consumers. Regulators in Europe also signalled opposition to the deal.

Halliburton, which has a market capitalisation of $35bn, and Baker Hughes, valued at $21bn, had planned to fight back against the lawsuit.

Dave Lesar, Halliburton’s chairman and chief executive, said in a statement that the challenges in winning regulatory approval combined with general industry conditions “that severely damaged deal economics led to the conclusion that termination is the best course of action”.

Martin Craighead, chairman and chief executive of Baker Hughes, said: “This was an extremely complex, global transaction and, ultimately, a solution could not be found to satisfy the antitrust concerns of regulators, both in the United States and abroad.”

The deal’s collapse is the latest sign that challenges from the Obama administration, whether on taxation or competition grounds, are scotching large and complex mergers and acquisitions.

Ms Lynch said the case served “as a stark reminder that no merger is too big or too complex to be challenged”.

It comes less than four weeks after the White House’s push to deter “tax inversion” deals prompted the drugmaker Pfizer to scrap its planned $160bn bid for Ireland-based Allergan.

Even before the latest cancellation, the total value of abandoned transactions this year was at its highest since 2007 — a stark turnround from 2015, when global dealmaking reached an all-time high.

The cash and shares tie-up of Halliburton and Baker Hughes would have created a newly enlarged rival to Schlumberger, the biggest operator in the oil services industry.

Such companies help oil and gas operators drill wells and supply them with equipment and tools.

Backers of Halliburton’s planned acquisition said it would have bolstered the group’s capability in areas where it was relatively weak, such as production chemicals and pumps used to improve oil recovery from wells.

They also said it would have helped Halliburton compete in overseas markets. The energy group had planned to cut costs aggressively to help justify a chunky takeover premium.

The cancellation of the deal is a blow to the companies, which had previously said they were confident of securing regulatory clearance.

It is also the latest downbeat news for Wall Street investment bankers, which have seen a deals drought at the start of the year hurt their fee income.