On November 17, 2014, Halliburton Company (“Halliburton”) announced plans to acquire Baker Hughes, Inc. (“Baker Hughes”) for $34.6 billion. Halliburton and Baker Hughes are two of the world’s largest oilfield services companies, providing drilling, formation evaluation, reservoir consulting and related services to oil and gas producers. Halliburton and Baker Hughes are reportedly considered two of the big three global oilfield services companies in the industry, second and third behind Schlumberger Ltd. (“Schlumberger”), the leading oilfield services company in the world. Although Schlumberger is reportedly the largest oilfield service company, reducing suppliers from 3 to 2 in any market will inevitably raise red flags with the Department of Justice (the agency expected to review the transaction), who will undoubtedly conduct a thorough antitrust review.
The DOJ is expected to analyze the segments in which both parties compete (e.g., drilling, formation evaluation, reservoir consulting) and examine the specific service within each segment where the parties compete head-to-head and make an assessment of how the transaction will impact competition in those specific areas. If the DOJ determines there are few remaining competitors post-merger they will have concerns: (1) that the transaction will give the merged firm a substantial share in a particular service and the ability to raise prices to customers (oil and gas companies) and/or (2) the transaction will diminish competition by enabling the facilitation of collusion by the few firms remaining in the market (i.e., the reduction in the number of firms competing in a particular market will make coordination on price, for example, more likely). It is highly likely that a Second Request will be issued in order for the DOJ to adequately investigate a transaction of this magnitude with a number of potential competitive overlaps.
It is notable that neither party is a stranger to the DOJ’s extensive review and divestiture process. For example, in 1998 Halliburton agreed to sell part of its worldwide oil field services business (logging-while-drilling or LWD services) and its drilling fluids business to resolve the DOJ’s competitive concerns in order to proceed with its merger with Dresser Industries. Similarly, in 2010, the DOJ required divestitures in Baker Hughes’ merger with BJ Services. There the DOJ was concerned that the transaction combined two of the only four companies that provided specialized pumping services (called stimulation services) necessary for the production of oil and gas from wells in the Gulf of Mexico.
In the parties’ merger agreement, Halliburton reportedly agreed to divest business up to $7.5 billion in revenue, which is a clear indication that the parties not only anticipate a full merger review, but that there is a high likelihood that the DOJ will seek divestitures.