The U.S. Department of Justice filed a civil antitrust lawsuit on Tuesday to block the proposed $35 billion merger between Halliburton and Baker Hughes.
The DOJ said in a statement that the proposed transaction would eliminate “important head-to-head competition in markets for 23 products or services” used for onshore and offshore oil exploration and production in the United States.
The suit was filed in the U.S. District Court for the District of Delaware, where both companies are incorporated, and asks the court to issue a full-stop injunction.
Halliburton and Baker Hughes said Wednesday that they “intend to vigorously contest the U.S. Department of Justice’s effort” to block the merger.
“The companies believe that the DOJ has reached the wrong conclusion in its assessment of the transaction and that its action is counterproductive, especially in the context of the challenges the U.S. and global energy industry are currently experiencing,” the companies said in a joint statement.
The DOJ said in its complaint that Halliburton’s proposed divestitures would not include full business units and would “be limited to certain assets, with the merged firm holding onto important facilities, employees, contracts, intellectual property, and research and development resources that would put the buyer of those assets at a competitive disadvantage.”
The DOJ also alleged that the proposed divestitures would mostly allow Halliburton to retain “the more valuable assets from either company while selling less significant assets to a third party.”
The complaint further alleges that the divestitures would “not replicate the substantial competition between the two rivals that exists today.”
During a press call, Assistant Attorney General Bill Baer said both companies earn over 90 percent of their revenues in areas where they are in direct competition with each other.
“In many of these markets, the merger would leave the industry with just two dominant suppliers – a virtual duopoly,” Baer said.
Baer said that the lawsuit “should surprise no one, least of all these two companies.”
“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….the more we looked, the more we became convinced that this deal is unfixable,” Baer said.
Halliburton defended its proposed divestment package and said both companies “strongly believe that the proposed divestiture package, which was significantly enhanced, is more than sufficient to address the DOJ’s specific competitive concerns.”
Halliburton and Baker Hughes previously agreed to extend the time period to obtain regulatory approvals for the deal to no later than April 30, 2016, as permitted under the merger agreement.
If the judicial review extends beyond April 30, 2016, the companies may continue to seek relevant regulatory approvals or either of the parties may terminate the merger agreement.
“Halliburton and Baker Hughes look forward to a full, impartial judicial review of the pending transaction, including the sufficiency of the proposed divestitures,” the companies said.