HOUSTON/NEW YORK (Reuters) - Oilfield services provider Baker Hughes Inc said on Thursday it is in preliminary merger talks with its larger rival Halliburton Co, though any potential deal would likely face antitrust concerns.
Two people familiar with the matter, who spoke on condition of anonymity, said Halliburton was looking to buy Baker Hughes, in what would be the second-largest energy deal of this year.
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 oil producers to slash prices.
Baker Hughes said in a statement it has “engaged in preliminary discussions with Halliburton Company regarding a potential business combination transaction.”
Halliburton declined to comment on the talks, which were first reported by Dow Jones and in The Wall Street Journal.
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.
There are at least seven major product lines where there is overlap between the two companies. The companies offer scores of services and technology, from drill bits, to cementing and casing work, to artificial lift systems that improve output from wells.
An analyst who follows the company and did not want to be quoted said Halliburton could get the deal down with a mix of debt and equity and still maintain its investment rating.
News of the talks sent shares of another services company, Weatherford International Plc, which has long been seen as vulnerable, up nearly 6 percent.
Baker Hughes shares were halted in New York Stock Exchange trading due to volatility. They later reopened and shot up 18 percent. Halliburton shares rose as much as 3.5 percent before trimming gains at the close.
The last major deal in the energy industry, announced in August and worth some $70 billion, was pipeline giant Kinder Morgan Inc’s move to fold its various units into a single entity.
Additional reporting by Mike Stone, Anna Driver, Diane Bartz; and Bangalore newsroom; Editing by Grant McCool