Halliburton Company to Pay $3.5 Billion Breakup Fee to Baker Hughes Incorporated On Failed Merger

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The merger between the two oilfield giants has been called off after antitrust regulators objected to it, forcing Halliburton to pay $3.5 billion as break-up fee to Baker Hughes

After rumors about potential termination of Baker Hughes Incorporated (NYSE:BHI) – Halliburton Company (NYSE:HAL) merger floated across the market recently, Halliburton announced yesterday that the deal has been called off. The news came as no surprise though, as the deal seemed troubled since April 6, when the Department of Justice (DoJ) filed a lawsuit against the $28 billion deal.

The multibillion deal was terminated after the DoJ and European Union regulators objected that the it would eliminate fair competition across 23 product lines. Despite being aware of the potential regulatory challenges they might have to face, both the companies aimed to overcome the obstacles when they announced the merger back in 2014. The tie up between the two oilfield services giants would have led to intense competition in global markets as it would have created a tough rival against Schlumberger, the leading oil field services provider in the US. On the other hand, US Attorney General Loretta Lynch views the termination of the deal as “a victory” for the US economy.

Martin Craighead, Baker Hughes CEO, said that the deal was a complex one, as he admitted the company’s failure to satisfy antitrust regulators’ concerns. The oilfield services provider is considered a prominent name in introducing state-of-the-art technologies in the oil services industry. The $21 billion company has struggled enough through its course of the deal, as it had to obtain approval from Halliburton for every sweeping change it had to make.

According to Baker Hughes’ first quarter earnings report, it was unable to avoid $110 million in merger-related costs, an amount that turned out to be a hefty contributor to the $981 million loss it reported for the quarter. However, Baker Hughes might be able to cushion the blow from the merger fallout, as Halliburton is due to pay a breakup fee of $3.5 billion by May 4, 2016, as mentioned in the press release.

Raymond James was among the firms who had predicted the fallout of the merger before Halliburton had officially announced it. The firm believes that after receiving the breakup fee, it might be able to cover merger-related costs. In contrast, the Street says the company would have about $5 billion to spend after oil prices recover and drilling activities increase.

ValueAct Capital Management, an activist hedge fund, is the largest Baker Hughes shareholder. The fund, which held 9% of Baker Hughes shares as of April 2016, suggested that the company should breakup and consider selling itself in case the merger fails to see the light of the day.

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