(CN) - The Justice Department on Wednesday sued to block Halliburton's planned $35 billion acquisition of oil services industry firm Baker Hughes, saying the merger would severely restrict competition in the industry.
Halliburton and Baker Hughes are the second and third largest U.S. providers of oilfield services, engaged in everything from drilling wells and evaluating reserves to extracting oil and gas.
Schlumberger Ltd., of Houston is the largest company in the oilfield services industry.
In November 2014, following possibly illegal speculation, the companies announced their intention to merge, which if consummated, would be the largest merger in the history of the industry.
Under the terms of the deal, Baker Hughes shareholders would receive 1.12 shares of Halliburton stock and $19.00 in cash for each of their shares.
But the Justice Department moved to block the acquisition Wednesday in Delaware federal court, claiming that "it would eliminate substantial head-to-head competition, and it would likely lead to higher prices and less innovation in this critically important industry."
Attorney General Loretta Lynch said in a written statement, "The proposed deal between Halliburton and Baker Hughes would eliminate vital competition, skew energy markets and harm American consumers."
In a press call, Assistant Attorney General Bill Baer said, "Our lawsuit should surprise no one, least of all these two companies. When they headed down the road to this merger, they knew they faced potentially insurmountable antitrust risk."
Baer said Halliburton prevailed on Baker Hughes' board to accept the merger offer despite the anti-trust risks, or face a costly hostile takeover battle.
As part of the deal, Halliburton agreed to pay Baker Hughes $3.5 billion if the merger cannot be completed.
"Halliburton has been claiming publicly from day one that it can fix any and all competition concerns, here in the United States, in Europe and around the world. At their request, and to be fair to them, we held off on this lawsuit and looked long and hard at what they put on the table," Baer said. "And, the more we looked, the more we became convinced that this deal is unfixable. Halliburton wants the United States to agree to the most complicated array of piecemeal divestitures and entanglements that I have ever seen."
Halliburton's proposed divesture of various assets will not replicate the benefits to the public that arise from competition between these two companies, the Justice Department says. Baer also noted that the merger would have an impact not just on competition in the U.S., but internationally. Many other regulators around the world are examining the legality of proposed merger, including the European Commission, Australia, Mexico, and Brazil.
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