The U.S. Justice Department will file a lawsuit as soon as this week to stop oilfield services provider Halliburton Co from acquiring smaller rival Baker Hughes Inc, a source familiar with the matter said on Tuesday.
The antitrust lawsuit could potentially scupper the deal that was first announced in November 2014 to combine the No. 2 and No. 3 oil services companies. Since then, oil prices have fallen by more than 55 percent.
Faced with opposition from the Justice Department, the companies may either cancel the planned tie-up or fight the government in court. The deal is one of several that antitrust enforcers have rejected as illegal during the recent wave of mergers of large, complex companies.
Share prices for Baker Hughes closed down 5.1 percent at $39.36 Tuesday while Halliburton ended up 1.2 percent at $34.40.
Halliburton and Baker Hughes both declined comment.
The two sides had been discussing asset sales aimed at saving the deal, which was originally valued at $35 billion but is now valued at about $25 billion based on the decline in Halliburton shares.
If the deal collapses due to antitrust concerns, Halliburton must pay Baker Hughes a $3.5 billion breakup fee, according to regulatory filings.
The proposed deal also has hit headwinds in Europe, where the European Union's competition authority was concerned that the proposed merger would reduce competition and innovation in more than 30 product markets. Regulators in Australia also flagged concerns about the massive tie-up.
As far back as July 2015, Reuters reported that there were concerns in the U.S. government that the merger would lead to higher prices and less innovation.