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New blow to Halliburton-Baker Hughes deal

Ed Crooks and James Fontanella-Khan
A big blow to Halliburton-Baker Hughes deal

Halliburton, the US oil services group, has been forced to delay for a second time its planned $26bn acquisition of rival Baker Hughes, after failing to reach an agreement with US competition regulators.

The US Department of Justice has told the two companies that the disposals they have offered to mitigate the deal's affect on competition are inadequate, but has not yet launched a legal action to block the takeover.

Instead, the two companies have agreed a final deadline of April 30 next year for closing the deal, and plan to continue their discussions with the DoJ in an attempt to secure approval.

The delays forced by the DoJ follow moves by US antitrust officials to block a series of high-profile deals this year, over fears that consolidation among large companies can hurt consumers and smaller businesses.

In November last year Halliburton agreed a deal to buy Baker Hughes, mostly in shares, which was valued at $38bn at the time but is now worth about $26bn because of the 18 per cent fall in the buyer's shares since the deal was announced.

The companies say the deal will help the oil and gas production companies that are their customers, because it would allow them to operate more cost effectively, "which is increasingly important due to the current state of the energy industry and oil and gas prices".

There are several areas of overlap between the two groups' businesses, and they made two rounds of announcements of planned disposals of operations to meet concerns that the takeover would damage competition.

In April, Halliburton pledged to sell its drill bits, directional drilling and measurement-while-drilling businesses.

Then in September Halliburton said it would also sell other operations used for bringing wells into production. Baker Hughes said it would sell some businesses including offshore cementing services in countries including the US and the UK.

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However, those remedies have not been enough to address the DoJ's concerns. In September Halliburton put back the target date for securing approval from the DoJ from November 25 to December 15, and had been aiming to close the deal by December 16. Now it has had to extend that target by a further four months.

The two companies said they had provided "millions of pages" of documents to the DoJ and attended "multiple" meetings, but warned that there was "no guarantee that an agreement with the DoJ or other competition authorities will be reached".

They added they were also still working "constructively" to secure approval from the European Commission.

Proposed deals scuppered by US competition regulators this year include Comcast's $45bn acquisition of rival Time Warner Cable, Tokyo Electron's $30bn deal to buy US chipmaker Applied Materials and the $3.3bn takeover of General Electric's domestic appliances business by Electrolux of Sweden.

The US Federal Trade Commission has sued to block the proposed $6.3bn acquisition of Office Depot by Staples.

Bankers warned that any large deal was likely to come under close scrutiny from US regulators, including the proposed $120bn merger between Dow Chemical and DuPont, announced last week.

"That deal (DowDuPont) is all about buying market share as their stock is under pressure and they are not growing," said a banker at one of Wall Street's largest investment banks. "Regulators will certainly look closely at that one."

Edward Breen, chief executive of DuPont who is intended to retain the same role at the merged DowDuPont, said on a call with analysts last week that he expected only "very minor" sales of businesses, if any, would be required to meet competition regulators' requirements.

Lawyers at Wachtell Lipton Rosen & Katz in New York said in a recent memo that US regulators' challenges to the GE-Electrolux and Staples-Office Depot deals highlighted the "aggressive positions" they were taking.