November 13, 2014 / 9:00 PM / 3 years ago

Baker Hughes says in talks with rival Halliburton

(Reuters) - Oilfield services provider Halliburton Co and rival Baker Hughes Inc are in preliminary talks on a potential merger, Baker Hughes said in a statement on Thursday.

The statement said the discussions "may or may not lead to any transaction" but two people familiar with the matter said

Halliburton was in talks to buy Baker Hughes. Any potential deal between the two Houston-based companies could run into antitrust concerns.

"Baker Hughes Incorporated today confirmed that it has engaged in preliminary discussions with Halliburton Company regarding a potential business combination transaction," the statement said.

Halliburton declined to comment on the talks, which were first reported by Dow Jones and in The Wall Street Journal. The people familiar with the matter spoke to Reuters on condition of anonymity.

Oil prices have slid by a third since June, eroding demand for drilling services and pummeling stock prices across the energy sector. That has prompted a flurry of chatter among executives and bankers about acquisition opportunities.

A tie up between the No. 2 and No. 3 players in the services industry might allow them to better weather the downturn and resist pressure from producers to slash prices.

A potential merger would create a drilling, logistics and well services giant worth $67 billion, initially with 140,000 employees.

But the merged entity would be only half the size of industry leader Schlumberger, which has a market capitalization of $125 billion.

If a deal were struck, the companies could well have to sell assets to convince regulators they would not hurt competition, said Seth Bloom, a veteran of the U.S. Department of Justice's antitrust division now in private practice.

"The question with mergers like this is are there divestitures of submarkets that can solve the problem," Bloom said. "It's clearly not a slam dunk to approval but it's not automatic that you can't get it through. You have to drill down to see what the markets are like."

The deal is also likely to draw the scrutiny of regulators in Europe, China, Brazil and Mexico, others experts said. Arguably, the antitrust concerns would be greatest outside the United States, where there are relatively few services companies.

Reporting by Nadia Damouni, Mike Stone, Anna Driver, Diane Bartz; and Bangalore newsroom; Writing by Terry Wade; Editing by Grant McCool

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