U.S. sues to block Halliburton-Baker Hughes merger deal

The U.S. Justice Department on Wednesday sued to block the $34 billion merger of oil-field services giants Halliburton and Baker Hughes, a tie-up the companies had pursued in the wake of slumping oil prices.

Halliburton and Baker Hughes, both based in Houston, immediately vowed to "vigorously contest" the government's actions.

But U.S. antitrust division chief Bill Baer delivered a blistering rebuke of the deal, saying it was so anti-competitive that it should never have made it out of the boardroom. He argued that a merger of two of the three largest U.S. oilfield services companies posed a "serious" threat to competition and "wasn't fixable."

"I have never seen one that poses so many antitrust problems in so many markets," Baer, an assistant attorney general, said in a conference call. "Our lawsuit should surprise no one."

With combined 2015 revenue of $39.3 billion, Halliburton and Baker Hughes control a nearly 16% market share in the oilfield services field, according to data provider IBISWorld. They provide a wide range of services such as oil-well completions, cementing and drilling.

"A vibrant economy depends on meaningful competition and vigilance by the department in challenging transactions like this that threaten to deny our citizens the benefits of competitive markets," Attorney General Loretta Lynch said on the call.

Halliburton shares (HAL) jumped 6% to finish the day at $36.64 while Baker Hughes shares (BHI)  rose 8.4% to close at $42.67, as investors clung to a semblance of certainty regarding the deal's outcome after nearly a year and a half of chatter over its fate.

The lawsuit comes as the U.S. oil and gas sector is grappling with the fallout of rock-bottom oil prices, which have sparked dozens of bankruptcies and more than 320,000 job cuts globally since late 2014, according to Houston consultancy Graves.

Halliburton, for example, long known for its sterling financial performance, swung from a $5.1 billion operating profit in 2014 to a $165 million operating loss in 2015 as total revenue declined 28% to $23.6 billion. The company recently announced plans to shed 5,000 jobs, about 8% of its global workforce. Baker Hughes has also laid off thousands of workers.

After reports surfaced of the Justice Department's plans, Deutsche Bank analyst Mike Urban said in a research note that chances of completing the deal "are a 'coin flip' at best," even though the analyst believes the merits of the deal are strong.

"The companies believe that the DOJ has 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," Halliburton and Baker Hughes said in a joint statement.

Baer rejected the suggestion that the Justice Department should pay deference to the merger in light of low oil prices.

"Both companies have a history of downsizing and upsizing," he told reporters. "It’s not a justification for an anti-competitive merger to say, 'We’re not doing as much business as we used to.'"

Halliburton and Baker Hughes called the deal "pro-competitive" and noted that Halliburton had offered to sell off billions of dollar in assets. But the Justice Department said Halliburton's proposed divestitures were insufficient and would not foster increased competition.

"Those have been a moving target. We don’t have the specifics on anything," Baer said.

The lawsuit was filed in U.S. District Court for the District of Delaware.

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.