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United States, Australia U.S. Department of Justice Still Not Satisfied with Terms

Industry enthusiasts waiting for approval of the impending merger between Halliburton (ticker: HAL) and Baker Hughes (ticker: BHI) will have to wait a little longer.

For the third time, the United States Department of Justice (DOJ) halted approval of the highly publicized merger between two of the world’s three largest oilservice companies, citing antitrust issues. The deadline has been extended to April 30, 2016. Bloomberg was the first to report on the news.

The Australian Competition & Consumer Commission (ACCC) also balked at the deal, delaying its decision indefinitely to “allow the merger parties additional time to provide information and to allow the ACCC to consider the information it has received.”

Trading of HAL and BHI shares were temporarily halted in day trading on December 15, 2015. The companies issued a joint statement after the market closed and reiterated its dedication to finalize the merger, but added “there is no guarantee that an agreement with the DOJ or other competition authorities will be reached.”

An Antitrust Encore

This week held great precedence for the fate of the highly scrutinized merger between two of the world’s three largest oilservice companies. Australia’s original deadline was Thursday, while the U.S. DOJ had until tomorrow after being granted two extensions in the second half of 2015.

The delays on behalf of both agencies comes just two weeks after Halliburton resubmitted a merger proposal to the European Commission (EU). The first EU proposal was denied due to “insufficient data.” Brazil’s agency still has yet to announce their determination. Other agencies in Canada, Kazakhstan, South America and Turkey have all green-lighted the merger.

Dave Lesar, Chief Executive Officer of Halliburton, spoke adamantly about reaching a deal in the company’s Q3’15 conference call.  The extension into 2016 merger finalization is permitted per the original terms of the agreement, even though HAL management was targeting a close before year-end. In any case the merger is not approved, Halliburton is on the hook for a $3.5 billion charge payable to Baker Hughes.

Source: HAL/BHI Merger Presentation

Source: HAL/BHI Merger Presentation

What’s The Holdup?

According to the joint press release, the DOJ informed the two companies that the $7.5 billion of proposed asset sales are not sufficient. A Bloomberg source (who declined to be named) suggested that U.S. officials are concerned that the oilservice industry would become too concentrated.

HAL and BHI management spoke sharply against the denials in their release, explaining the benefits realized by customers upon the merger consummation. An excerpt reads:

“Over the last year, Halliburton and Baker Hughes have engaged in extensive and productive discussions with the DOJ regarding Halliburton’s acquisition of Baker Hughes. The parties have responded to numerous DOJ requests for information, producing millions of pages of documents, providing numerous written submissions in response to specific questions, and participating in multiple meetings with the DOJ.

“As previously announced, early in the process, Halliburton proposed to the DOJ a substantial divestiture package that would facilitate the entry of new competition in markets in which products and services are being divested. Both companies strongly believe that the divestiture package, which recently was significantly enhanced to address the DOJ’s specific competitive concerns, is more than sufficient to address concerns raised by competition authorities, including the DOJ.”

The companies implied they will continue to attempt to meet the concerns set forth by the agencies. Bloomberg reported last month that GE (ticker: GE) was in advanced talks to purchase HAL’s drill bits and drilling services divisions last month, but both companies denied to comment on the news.

The ‘other’ oilservice giant, Schlumberger (ticker: SLB), successfully acquired and received antitrust approval on a $14.8 billion deal with Cameron International earlier this year. The SLB merger is set to close in Cameron’s annual shareholders meeting this week – six months after the announcement. The HAL/BHI merger is in its 13th month and seemingly still has a long way to go.

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