Halliburton Co. (HAL:US) expects to sell just half the $7.5 billion in assets it’s committed to divest to win antitrust approval for a planned takeover of Baker Hughes Inc. (BHI:US), according to people familiar with the deal.
The combined company is prepared to divest parts of at least three overlapping business lines to satisfy regulators worried about the loss of competition, said the people, who asked not to be identified because the matter isn’t public.
Halliburton agreed to divest businesses that generate up to $7.5 billion in revenue to satisfy Baker Hughes’s concerns even though it doesn’t expect regulators will demand that much to be sold, the people said. Companies in line to pick up the assets include Weatherford International Plc (WFT:US) and National Oilwell Varco Inc. (NOV:US), according to analysts.
“There are usually a tremendous number of business lines that you can carve off if divestitures are needed,” Hill Wellford, a lawyer at Bingham McCutchen LLP in Washington, said about mergers in the oilfield services industry.
Those businesses are drill bits, which are the tips for drilling wells; a service that helps drillers track where they are in a well as they dig; and offshore sand control, which prevents sand from spilling into a well, the people said.
Antitrust scrutiny of the $34.6 billion deal was an initial worry for Baker Hughes in talks with Halliburton and it wanted a commitment that Halliburton agree to any divestitures required by regulators, one of the people said. Halliburton countered that wasn’t necessary, explaining where the companies’ products overlapped, according to the people.
Overlapping Lines
Halliburton expects to close on the Baker Hughes purchase in the second half of next year. The Houston-based companies can choose which of the two will divest an overlapping business to address antitrust concerns, one of the people said.
Even though the tie-up would combine the second- and third-largest oilfield service companies behind Schlumberger Ltd. (SLB:US), the antitrust review by the Justice Department would concentrate on overlaps in particular product lines, according to lawyers.
“There is no doubt there will be serious antitrust review including divestitures,” said Elai Katz, an antitrust lawyer at Cahill Gordon & Reindel LLP in New York. “The analysis has to be done not based on global oil-drilling services generally but service by service, and that’s how Halliburton expects to get out of it.”
Pressure’s On
One area of scrutiny for antitrust regulators will be offshore drilling services in the Gulf of Mexico, said Andrew Cosgrove, an energy analyst with Bloomberg Intelligence. Oil producers primarily rely on the “big three” -- Halliburton, Baker Hughes and Schlumberger, he said.
“Now if it’s two, that potentially increases pricing power for the service companies and puts pressure on” exploration and production companies, Cosgrove said.
Halliburton and Baker Hughes will need antitrust approvals in about a dozen jurisdictions, said one of the people.
Another business that may have to be sold is offshore cementing in which they seal and reinforce well structures, said one of the people.
Logging-while-drilling, which involves using sensors to measure well conditions, is an area where the two companies have a large position that will likely need to be reduced, said Rob Desai, an analyst for Edward Jones in St. Louis.
Potential Buyers
Other areas expected to be pared down include the companies’ drilling bits and drilling fluids businesses, said Kurt Hallead, an analyst for RBC Capital Markets in Austin, Texas.
The Justice Department in 2010 required divestitures in Baker Hughes’ takeover of BJ Services Co., which the government said threatened competition in the market for specialized pumping, or stimulation services necessary for the production of oil and gas in the Gulf of Mexico.
Weatherford International would be a logical buyer for all of the likely assets to be sold, Hallead said. National Oilwell Varco could be a buyer for the drill bits and drilling fluids areas, he said.
Superior Energy Services Inc. is another possible buyer of some segments expected to be sold, said Praveen Narra, an analyst for Raymond James & Associates Inc. in Houston.
To contact the reporters on this story: David McLaughlin in Washington at dmclaughlin9@bloomberg.net; Matthew Monks in New York at mmonks1@bloomberg.net; Zain Shauk in Houston at zshauk@bloomberg.net
To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net Robin Saponar, Tina Davis
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