Oil Industry Mergers: US Antitrust Regulators Poised To Block Halliburton Bid To Buy Baker Hughes

The U.S. Justice Department will move to block a deal as soon as this week that would merge two of the world’s largest oil field services companies, according to a Reuters report citing an anonymous source familiar with the matter.

A Justice Department spokesman wouldn’t comment on the news on Tuesday, but it’s been widely reported the U.S. government would seek to block the deal announced in November that would bring together major Houston-based oil field operators Halliburton and Baker Hughes.

The move comes as energy companies face a tough year of debt defaults, asset sales and mergers and acquisitions amid a global oil glut. Oil prices are trading at lows unseen since the 2008-09 global economic downturn.

On Monday, Schlumberger and Cameron International finalized their merger without a challenge from federal antitrust regulators.

“The No. 2 in the industry is trying to buy the No. 3 in the industry,” said Fadel Gheit, senior energy analyst with Oppenheimer & Co., referring to Halliburton. “But combined they would still be smaller than Schlumberger. For all practical purposes, Schlumberger is the big dog in the pound.”

The Halliburton-Baker Hughes merger would bring together two companies worth a current combined market value of $46 billion. Schlumberger’s market value stands at about $91 billion, several times more than Cameron’s $12 billion. Gheit says the Schlumberger deal wasn’t challenged because Cameron is a relatively small player, but said he supports the Halliburton-Baker Hughes merger as necessary in light of the struggles in the industry.

Halliburton has been struggling to gain regulatory approval of its $35 billion bid for its rival. The Department of Justice has said Halliburton needs to find a single buyer for about $7.5 billion in assets instead of selling to multiple buyers.

That demand leaves few options for the company once headed by former U.S. Vice President Dick Cheney. A buyer with that kind of cash would have to be major industrial player, such as General Electric.

“Finding a single buyer will be a challenge,” a source close to the situation told the New York Post in September.

Halliburton Co. (NYSE:HAL) shares gained 1.3 percent to $34.41 on Tuesday, but are down nearly 22 percent over the past year. Stock in Baker Hughes Inc. (NYSE:BHI) plunged more than 5 percent to $39.38 Tuesday and is down about 38 percent over the past year.