Halliburton has said it will battle to save its agreed $25bn takeover of rival Baker Hughes, after the US government filed a legal action to block the deal.
The Department of Justice argued that the takeover, which would bring together the world’s second-largest and third-largest oil services groups, would reduce competition, distort energy markets and hurt US consumers.
The deal, agreed in November 2014 after Baker Hughes had initially resisted Halliburton’s approach, is an ambitious attempt to restructure the global oil services industry that has faced detailed scrutiny from regulators around the world.
The two companies’ operations have a substantial overlap, with 90 per cent of Halliburton’s revenues coming from products and services that are also offered by Baker Hughes, according to the DoJ.
Bill Baer, assistant attorney-general in the DoJ’s antitrust division, said: “I’ve seen a lot of problematic mergers in my time, but I’ve never seen one that presented so many problems in so many markets.”
The DoJ said that there were 23 markets where the impact on competition would be “particularly acute”, including products such as drill bits and services such as monitoring wells while they are being drilled.
For some services the deal would create a duopoly between Halliburton and its rival Schlumberger, with the two companies sharing 99 per cent of the US market for cementing offshore wells, for example.
Halliburton rejected those arguments, saying in a statement that the takeover was actually “pro-competitive”. It argued that the deal would cut costs for the oil and gas production companies that are its customers, because the enlarged group would be more flexible and more efficient, and those savings were “especially important now due to the state of the energy industry and oil and gas prices”.
It added that it was looking forward to a “full, impartial judicial review” of the proposed deal.
The case will be heard at the US district court in Delaware, which is where Halliburton and Baker Hughes are registered.
Halliburton says its package of planned asset sales should overcome objections to the deal. It proposed a list of disposals early on in its discussions with the DoJ, and then added further assets to that list in September.
However, the DoJ described those proposed solutions as “wholly inadequate”.
In a filing to the Delaware court, the DoJ’s lawyers described Halliburton’s plans as “among the most complex and riskiest remedies ever contemplated in an antitrust case”.
Mr Baer said that issues such as control of intellectual property meant that in the markets that were affected, the deal would “eliminate today’s formidable rival [Baker Hughes] and replace it with a smaller, weaker one”.
He also highlighted concerns about the effect of the deal on innovation in the oil industry, saying that the ‘big three” oilfield services groups, with Schlumberger being the largest, were unique in their ability to develop new technologies.
The prospect that the deal could be blocked was seen in the stock market as good news for both companies. Halliburton’s shares rose 6.5 per cent to $36.63 by lunchtime in New York, while Baker Hughes was up 9 per cent at $42.91.
There has been speculation that if Halliburton has to abandon its bid, another company such as General Electric might seek to acquire Baker Hughes.