MergerMarket
Baker Hughes/Halliburton divestiture package has more than one buyer, sources say
* Weatherford no longer in the running
* Engagement with DoJ called constructive
Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI) continue to see more than one buyer interested in acquiring a package of assets they plan to divest to secure antitrust clearance, people familiar with the matter said.
The people familiar said the other potential buyers are “big enough” to complete a deal. They added that the Department of Justice (DoJ) has not asked for a single buyer for the entire asset package, which has changed in composition over time.
General Electric (NYSE:GE) has been the lead bidder to purchase the assets, which the Houston-based oilfield services companies have been shopping since last summer, this news service previously reported.
Antitrust regulators in the US, Europe and Asia have been scrutinizing the proposed USD 35bn Halliburton and Baker Hughes merger for several months. GE has been widely considered the only buyer able to resolve antitrust regulators’ concerns about the transaction, offering the industrials giant an opportunity to drive a hard bargain.
Weatherford International (NYSE:WFT), a smaller oilfield services group, has abandoned its pursuit of the Halliburton divestiture assets, two separate sources briefed on the matter said. These sources said they are skeptical that any viable buyer other than GE exists.
Antitrust regulators should even be concerned about a GE deal, one of the sources briefed said. He noted the conglomerate may not be competitive right away, even with its already sizable energy business, and may lose market share. GE will be a distant third in size to worldwide leader Schlumberger (NYSE:SLB) and second place Halliburton.
The New York Post reported this month that the DoJ could decide as soon as this week to file suit to challenge the deal in connection with the American Bar Association’s annual antitrust conference in Washington DC. The companies’ merger agreement terminates on 30 April unless they agree to an extension.
Halliburton and Baker Hughes have not asked regulators to reach a decision on the deal by a certain date, the people familiar said. The DoJ and European Commission (EC) are aware of the contractual provisions, but the contract is between the companies and not the agencies, these people said.
The timing agreement between the DoJ and Halliburton and Baker Hughes lapsed in December.
The DoJ informed the companies that it did not believe that the remedies offered to date were sufficient to address the DoJ’s concerns, but that they would assess further proposals. The transaction remains subject to antitrust clearance in the European Union.
The EC stopped the clock on its in-depth investigation in March. The people familiar said stopping the clock is sometimes beneficial to drafting a final remedy with regulators. There is a chance that the DoJ and the EC, who have been in continuous dialogue, come to the same conclusions about remedies for the merger.
The situation between the DoJ and companies has not changed much since December except that they have put more assets on the table for divestiture, addressed more of the government’s concerns, and eliminated some concerns that were raised initially, the people familiar said.
Baker Hughes and Halliburton are engaged in very constructive talks with the DoJ and have been continuously providing the agency with detailed information on all the issues that have been raised, the people familiar with the matter said.
If DoJ had wanted to challenge the transaction, it could have filed a lawsuit after the waiting period expired in December, these people familiar said. This suggests the government may be exploring scenarios around a settlement, they added.
Since the DoJ is not facing a time constraint due to the EC review, it is able to entertain various offers, one of the sources briefed said. He said at this point, more than negotiations with the agencies, it is about remedies that are being offered by the parties.
While the ultimate decision by the DoJ cannot be predicted, the companies have good reason to be positive given the broad range of assets they have offered to divest and buyers’ interest in the assets, the people familiar said. The asset package is “substantial,” these people familiar said.
The DoJ has asked for more divestitures than the USD 7.5bn of assets earmarked by Halliburton in late 2014, when the deal was announced.
The sources briefed on the matter said from their vantage point it appears that Halliburton and Baker Hughes have backed down from an aggressive approach to dealing with the DoJ.
The people familiar with the matter disagreed with the aggressive characterization, noting that both companies have made it known to regulators around the world that the situation is best resolved with an amicable settlement given the complex nature of the deal.
Both companies have taken a transparent and open approach toward understanding concerns of the regulators across the board, and, as a result, the DoJ and the EC have an “incredible” amount of information at their disposal, they said.
Adopting an aggressive approach has never been a strategy of the parties as it would defeat the purpose of finding an amicable solution, the people familiar said.
Halliburton and Baker Hughes have put substantial asset divestitures on the table since early on in the DoJ investigation and have aspired for a solution that is a win for the regulators who want to preserve competition, the customers and the merging parties, the people familiar said.
They described this merger to be heavily fact-intensive compared to many other deals that DoJ has reviewed and the parties have had many meetings with the agency to answer their queries and provide as much information as is possible to ease their concerns.
The review has taken as long as it has given that the divestments for this complex deal have to be made in the US and overseas and the buyers vetted carefully by the DoJ and the EC, these people pointed out.
Halliburton and Baker Hughes declined to comment. Weatherford did not respond to requests for comment.