Failed Merger Costs Halliburton $3.5 Billion

HOUSTON (CN) - Halliburton will eat a $3.5 billion breakup fee for calling off its $34 billion merger with Baker Hughes, conceding that the merger of the two oil services giants could not overcome antitrust concerns of U.S. and European regulators.

The two Houston-based companies are the biggest in the oil service industry behind Schlumberger. The Justice Department sued them in Delaware Federal Court on April 6 to block the deal, for fear the new company would have too much market power.

Attorney General Loretta Lynch said the combined companies would control as much as 90 percent of U.S. sales.

Halliburton had an enormous incentive to see the deal through — the giant breakup fee — and vowed in late April to fight the lawsuit even as it announced a self-imposed April 30 deadline to obtain regulatory approval.

"In connection with the termination of the merger agreement, Halliburton will pay Baker Hughes the termination fee of $3.5 billion by Wednesday, May 4, 2016," Halliburton said in a statement Sunday.

The companies announced the deal in November 2014 as the price of oil sank below $70 per barrel before bottoming out at under $30 in January this year.

Halliburton measures its financial health by the number of rigs in the field, and touted the merger as a way to reduce costs and expand its global reach.

The European Commission launched an investigation of the merger in January and that scrutiny combined with the disapproval of U.S. officials proved too much.

To soothe the federal government's antitrust concerns, Halliburton agreed to divest some of its oil-drilling businesses, but the feds found the offer lacking.

"While both companies expected the proposed merger to result in compelling benefits to shareholders, customers and other stakeholders, challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action," Halliburton CEO Dave Lesar said in a statement.

Baker Hughes CEO Martin Craighead blamed the deal's demise on its complexity.

In announcing the federal government's lawsuit, Assistant Attorney General Bill Baer said Halliburton was asking approval of "most complicated array of piecemeal divestitures and entanglements" that he'd ever seen.

"This was an extremely complex, global transaction and, ultimately, a solution could not be found to satisfy the antitrust concerns of regulators, both in the United States and abroad," Craighead said in a statement.

A spokesman for Halliburton cited company policy in declining to comment on the case, but said that "the health and safety of our employees is of paramount concern."

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