General Superintendence issues opinion on Halliburton’s takeover of Baker Hughes
The General Superintendence of the Administrative Council for Economic Defense – CADE, in an opinion published in the Official Journal of 7 November 2015, submitted the merger file regarding the acquisition of Baker Hughes by Halliburton (Merger File no. 08700.007191/2015-40). The transaction refers to a worldwide operation, notified in different jurisdictions, such as the United States, the European Union, China, Russia and Australia. The companies are large suppliers of products and services for the oil and gas industry, being Petrobras their largest client in Brazil.
After the analysis of information obtained from the parties, competitors and clients, the General Superintendence concluded that Halliburton and Baker Hughes are among the three main competitors in the market of products and services for the oil and gas industry. The market shares of the two companies are significant in several products and services offered – such as hydraulic fracturing, directional drilling and well cementing –, nationally and internationally.
According to the CADE’s opinion, various elements suggest that the transaction may result in price increasing in several markets related to the company’s playing field, since the sector has high barriers to entry and there would be a situation of lower competition in the post-merger scenario. The retraction of the expected demand for next years, the necessity of experience for the services’ execution, and the access to certain essential technologies protected by patents currently controlled only by parties and by another company, are among the main difficulties for the entry of new competitors.
CADE’s opinion also concluded that the company resulting from the transaction might concentrate market power and coordinate effects in the analyzed markets, since Halliburton and Baker Hughes can offer in a integrated manner (in packages) a wide range of services and products, in addition to the existence of a single competitor from their size and competitive technological capacity.
Due to competition concerns, the General Superintendence understood that the transaction’s approval in the way it was presented could result in price increasing in several markets and reduction of innovation incentives, which would directly impact Brazilian oil and gas sector. In this sense, the enforcer challenged the merger before CADE’s Tribunal, which will be responsible for the approval, blocking or adoption of remedies. The Tribunal’s decisions may be applied unilaterally or following an agreement with the parties.
The transaction was notified in July 2015. The legal timeframe for CADE’s final decision is 240 days after notification, extensible for another 90 days.