The U.S. Justice Department today filed an anti-trust lawsuit aimed at preventing oil service company Halliburton Co. from taking over rival Baker Hughes in a deal valued at $34.6 billion. This comes in the wake of an announcement this week regarding Pfizer’s decision to call off its $152 billion merger with Allergan owning to new tax rules. Incidentally, the Pfizer PFE +2.32% merger was an example of the chilling effect U.S. Treasury rules had on mergers, where U.S. companies were trying to head overseas to avoid high U.S. taxes. In the past, the administration has attempted to block a range of mergers including Comcast’s purchase of Time Warner Cable, AT&T’s purchase of T-Mobile, and the merger between American Airlines and U.S. Airways.
The transaction, in the works since 2014, would combine America’s second and third largest oil service companies, a move which regulators argue would stifle competition. Attorney General Loretta Lynch commented on the deal saying it would, “eliminate vital competition, skew energy markets and harm American consumers.” Bloomberg reports the potential merger faces hurdles in Europe, Brazil, and Australia with regulators claiming similar arguments. In fact, the European Commission halted its review of the deal for the third time citing a lack of critical information.
In a joint statement defending the deal, the companies say regulators have 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,” and are expected to take up the government’s legal challenge. In Halliburton’s defense, low oil prices combined with increasing government regulations has placed a heavy load on the energy industry in general leading the loss of almost 350,000 jobs and a spate of mergers during the last couple of years. According to USA Today, Halliburton itself suffered a $165 million operating loss in 2015 and had previously announced it would have to cut eight percent of its workforce, a staggering 5,000 jobs. The company has called the deal pro-competition, stating regulators undervalue the spirit of competition in the oil service industry. Halliburton has already expressed willingness to divest in various assets amounting to billions of dollars in order to see the merger through.
After years of mergers, the current administration is clearly signaling that mergers will face much higher levels of scrutiny and those aimed at avoiding taxes through inversions or relocating assets or jobs abroad will likely face significant opposition.
Mr. McCown is a former government executive, attorney, public policy expert, and the founder of Aii. To learn more, follow him @BAMcCown.