WASHINGTON (AP) — The Justice Department is suing to stop Halliburton from buying oilfield-services rival Baker Hughes, the latest effort by the Obama administration to block mergers that it believes enrich corporations but hurt consumers.
The government argues that the $35 billion deal would lead to higher prices and less innovation in the business of helping energy companies drill for oil and gas.
The Justice Department filed a lawsuit Wednesday in federal court in Delaware, charging that the deal would eliminate head-to-head competition in 23 markets for products and services including drill bits, fluids and expertise in drilling horizontal wells. Those and other innovations have helped spur a renaissance in U.S. energy production.
Halliburton Co. is the world's second-biggest services company in the oil business and Baker Hughes Inc. is third. Combining them would create a duopoly with market leader Schlumberger Ltd., the Justice Department said.
Halliburton and Baker Hughes said they would contest the lawsuit. They said that the Justice Department was wrong in how it viewed the deal, especially given the downturn in the oil industry
The Houston companies said in a joint statement that their deal would improve competition by creating a more flexible, innovative services company.
"The transaction will provide customers with access to high quality and more efficient products and services, and an opportunity to reduce their cost per barrel," the companies said.
The companies announced their plan to combine in November 2014, shortly after oil prices began to fall due to a global oversupply of crude. The glut has slowed demand for drilling services. Both companies have laid off thousands of workers, and their shares have fallen sharply since the highs of mid-2014.
Assistant Attorney General Bill Baer, head of the Justice Department's antitrust division, said oilfield services is a cyclical business and its companies grow and shrink with market conditions. "It's not a justification for an anticompetitive merger to say, 'We're not doing as much business as we used to,'" he said.
Halliburton has proposed spinning off billions of dollars in assets to get the deal approved — it could owe Baker Hughes a $3.5 billion breakup fee if the deal falls through. Baer dismissed the divestiture offer, calling it a "grab bag" of the companies' less-valuable holdings.
Last year saw a record of more than $5 trillion in corporate mergers and takeovers, topping 2007 as the biggest year ever for deals, according to Dealogic. Speaking to antitrust lawyers in Washington, Attorney General Loretta Lynch said the deals are also bigger and more complex.
"This represents a remarkable shift toward consolidation and it presents unique challenges to federal enforcers in our work to maintain markets that serve not just top executives and majority shareholders, but every American," Lynch said. Consolidation, especially in industries that already have few competitors, raises serious concern about higher prices, lower quality and less innovation, she said.
Lynch cited deals that were stopped or abandoned in the face of regulatory objections including a Comcast-Time Warner Cable tie-up, AT&T's attempt to buy T-Mobile, and a combination of Chicken of the Sea and Bumble Bee.
"To even begin the merger process in these instances was little more than a waste of corporate and taxpayer dollars," she said.
The high-profile victories cited by Lynch may be encouraging regulators to challenge new deals.
"That gives them confidence and emboldens them in the way they think about transactions," said Jeff Jaeckel, a Washington lawyer who has represented airlines and other companies in antitrust cases. He said success is making regulators more likely to demand bigger asset sales or try to block transactions.
Analysts said that even without the deal, Halliburton, a leader in the drilling technique known as hydraulic fracturing or fracking, would still be poised to profit from a recovery in the North American energy business. But Baker Hughes' prospects as a stand-alone company would be less certain.
"Baker Hughes has great technology, but there has always been this mystifying imbalance between the technology platform and their operational results," said Bill Herbert, an analyst for Simmons & Co., part of Piper Jaffray.
The company might go back on the sales block. GE could take advantage of low oil prices and the collapse of the Halliburton deal to buy Baker Hughes — a quick, attractive way to enter the oilfield-services business — said Raymond James analyst J. Marshall Adkins.
Investors had long braced for the possibility that the deal could fail to win regulatory approval, and shares of both companies rose on Wednesday.
Halliburton gained $2.04, or 5.9 percent, to $36.44; Baker Hughes climbed $3.47, or 8.8 percent, to close at $42.83.
Koenig reported from Dallas.