HAL Halliburton Co

By Brent Kendall and Alison Sider 

WASHINGTON -- The Justice Department on Wednesday filed an antitrust lawsuit challenging Halliburton Co.'s planned acquisition of rival Baker Hughes Inc., alleging that the deal would threaten higher prices and reduced innovation in the oil-field services industry.

The lawsuit, filed in a Delaware federal court, asserts that the transaction would eliminate important head-to-head competition in markets for 23 products and services used for U.S. oil exploration and production, from drill bits to offshore cementing services. The effect would be to skew energy markets and harm American consumers, the department said.

Bill Baer, the Justice Department's antitrust chief, pulled no punches in his criticisms of the merger and made clear the government's decision to sue wasn't a close call.

"I have seen a lot of problematic mergers in my time. But I have never seen one that poses so many antitrust problems in so many markets," Mr. Baer said. Some deal proposals should never leave the corporate boardroom, he said, and "this deal falls squarely in that category."

The companies pledged to fight the Justice Department lawsuit. In a joint statement, they said they "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."

The Wall Street Journal reported Tuesday that a government lawsuit challenging the transaction was imminent.

The nearly $35 billion deal, originally announced in November 2014, proposed to combine the world's second- and third-largest oil-field services firms, behind only Schlumberger Ltd.

The transaction has faced antitrust resistance around the globe, including in Europe. The U.S. lawsuit Wednesday is the biggest hurdle yet for the merger.

Since the deal was struck, the oil-field services industry has faced severe setbacks, as persistently low oil prices have slashed demand for the business of drilling wells and pumping oil and natural gas.

Halliburton and Baker Hughes have been seeking to ease concerns that their merger would slash competition by offering to sell off assets worth billions of dollars to other firms.

The companies said Wednesday their proposal would "facilitate the entry of new competition in markets in which products and services are being divested." They added, "Both companies strongly believe that the proposed divestiture package, which was significantly enhanced, is more than sufficient to address the DOJ's specific competitive concerns."

The companies said their combination would create a more flexible, innovative and efficient company that could reduce costs for customers.

The Justice Department was highly critical of the companies' divestiture proposal, saying the merged firm would retain more valuable assets while selling less-significant ones to third parties.

The department's Mr. Baer said the government had held off on filing a lawsuit to give a full hearing to the companies' offer. But he said Halliburton's proposal for fixing the transaction's competitive problems "changes by the day" and is "so complicated and convoluted" that it could never work to preserve a competitive marketplace.

While most mergers continue to receive government approval, the legal challenge is the latest evidence that U.S. antitrust enforcers in the Obama administration are pushing back against transactions they believe raise significant threats to competition.

Last year, the Justice Department sank several deals, including General Electric Co.'s planned sale of its appliance business to Electrolux AB and Comcast Corp.'s planned acquisition of Time Warner Cable Inc.

Both of those deals were eventually abandoned.

The Federal Trade Commission, meanwhile, is in the midst of court proceedings against a proposed merger of Staples Inc. and Office Depot Inc.

Write to Brent Kendall at brent.kendall@wsj.com and Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

April 06, 2016 12:58 ET (16:58 GMT)

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