The DOJ’s decision deadline on the largest merger in oilfield service history was Tuesday. It came and went without any action to either approve the deal or block it.
Instead, the DOJ told Halliburton and Baker Hughes that it needs more time to investigate as it does not find the remedies offered to date sufficient to address its concerns about the deal. The remedies offered to date have been tailored to the competition committee’s own requests.
The two companies have agreed to an extension to April 2016 for the regulator make up its mind. The deal was originally expected to close by in 2H15, and has been delayed several times to accommodate regulatory review.
It is notable (and positive for the deal’s fate) that the DOJ did not initiate litigation to block the deal. This is a sign that satisfactory remedies may be within reach. But it is concerning that the DOJ’s indecision follows a whole year of cooperation during which the companies a) produced millions of pages of documents, b) proposed and expanded significant business divestitures, c) responded to numerous DOJ requests, and d) met with the regulator multiple times.
Over the past year of working with the companies, the DOJ has had every chance to tell the companies what it needs to see to make the deal acceptable. With a $3.5bn breakup fee looming and the organizational distraction of the pending integration, Halliburton would have met almost any request. In fact, the scope of divestitures has been significantly increased to address specific competitive concerns raised by the DOJ. Yet still the regulator can’t seem to decide what it wants here.
The companies aren’t getting the clarity needed to sufficiently remedy US competition committee concerns. It’s beginning to seem like either intentional negligence or incompetence on the part of the DOJ. Meanwhile, the indecision leaves two of the industry’s largest companies in limbo.
Say what you will about the deal, but these two companies have bent over backwards to give the regulator everything they need to rule on this case. Whether you are for or against the deal, it is high time for the government to get off the fence and either stop the deal or make its final contingencies clear. We understand this is a complex transaction with wide reaching implications, but if a company took over a year to make a decision like this they’d be out of business or the CEO would be fired.
The DOJ isn’t the only regulator considering the deal, last week we wrote about concerns in Brazil and EU talks are ongoing as well. But the DOJ is the leader and other competition committees cue off of it’s decisions. If the DOJ had been quick to approve, committees in Europe and Brazil would likely have acted faster with approvals as well.
The DOJ’s indecision is destroying value. The people that work for these companies are being hurt by the indecision. Customers of these companies are hurt by the indecision. The industry as a whole is hurt by the indecision.
It’s time for an answer. If the DOJ misses the April 2016 deadline and then ultimately decides to block the deal sometime next year, Baker Hughes may have no future as a stand-alone entity. It’s best option at that point may be to sell to another bidder (maybe GE?) at a significantly lower value.