http://www.bloomberg.com/gadfly/articles/2016-05-02/halliburton-owes-its-investors-an-explanation?cmpid=yhoo.headline
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TAKING THIS SHIP DOWN, GREAT MIND WITH A GREAT PLAN. NOT!!!!
Back when the deal was announced in November 2014, Halliburton said it was willing to divest businesses that generate as much as $7.5 billion in revenue to appease regulators, but believed the actual required asset sales would be "significantly less."••• That calculation gave it the confidence to offer Baker Hughes an unusually high breakup fee of $3.5 billion -- or 10 percent of the transaction's announced equity value -- should regulators protest the deal. Asked repeatedly by analysts about the merger's odds of approval, Halliburton's executives were confident they wouldn't have to pay that -- in hindsight, overly so. Here's Halliburton CEO David Lesar:
``We have the best antitrust counsel available on this, and we clearly would not have done this deal if we didn't believe it was achievable from a regulatory standpoint. In fact, that's why the reverse breakup fee is there and at the size it is because we are absolutely confident that we're going to get this thing done.''
Halliburton was certainly not the only one to be overly bullish. A number of analysts and merger-arbitrage experts thought this deal would ultimately pass muster, perhaps with a few extra divestitures. Some still think it should have been approved, with Evercore ISI's James West arguing the Justice Department overstepped its bounds in challenging the acquisition. And to some extent, this deal may have been a victim of timing. Antitrust scrutiny of mega-mergers has increased as the number of such deals has grown and regulators may have already made up their minds to say no regardless of what the companies did.
According to the DOJ's lawsuit, Halliburton wanted to divest just parts of certain businesses (say, for example drill bits -- but not all intellectual property or customer contracts tied to them), the effect being that it could still end up making money off of those very assets. In other words, Halliburton was willing to give up $7.5 billion of assets, but only on its own terms. That doesn't exactly smack of compromise.
The Justice Department was also reportedly interested in having a single buyer for the divested assets, according to the New York Post. That's the kind of thing companies ideally would have lined up before a deal is announced, because the buyer's negotiating hand only gets stronger as the regulatory process drags out.
The bottom line: Halliburton should have been better prepared, or at least quicker on its feet.
Big risks often end in big defeats. The next time a buyer trots out a chunky breakup fee and dismisses the risk of a regulatory battle, alarm bells should be going off in investors' heads.