by Natalie Regoli, J.D.
Baker Hughes’ pending acquisition of BJ Services is the first major one in the oilfield-services sector since the fall in energy prices last year. Analysts hoped it would signal a turnaround in merger and acquisition activity in the energy sector. Chad Deaton and Bill Steward of Baker Hughes and BJ Services projected the deal could close by the end of the year. So why has the Antitrust Division of the Department of Justice (DOJ) sought additional information about the transaction?
By way of background, the goal of antitrust laws is to proscribe mergers and business practices that may restrain competition. As an attorney, I’d be remiss if I didn’t warn that the rules are complex, and counsel should be sought whenever practices potentially raise antitrust issues. That said, there are three core federal antitrust laws, and it is the Clayton Act that is pertinent to merger reviews. Merger reviews are performed in five steps, and Baker Hughes and BJ Services are currently on the third step, which is where the DOJ decided it needed more information. As it stands, the DOJ is preventing the companies from completing their deal until they have “substantially complied” with delivering more information and then observing a second waiting period. Presuming they can “substantially comply,” the DOJ will then let the deal proceed, stop it entirely, or propose some hybrid path forward.
The additional scrutiny of the Baker Hughes/BJ Services deal by the DOJ is merely symptomatic of the Obama administration’s overarching objective to shift wealth from one party to another, in this case by aggressively pursuing mergers. According to the NY Times, Christine A. Varney, Assistant Attorney General in charge of the DOJ’s Antitrust Division, is specifically targeting the energy industry in her quest to aggressively strengthen her regulatory agenda. Moreover, she stated in a May 2009 DOJ release that:
“[t]he recent developments in the marketplace should make it clear that we can no longer rely upon the marketplace alone to ensure that competition and consumers will be protected.”
Varney argues not only that vigorous antitrust enforcement must play a significant role in the government’s response to economic turmoil, but even that inadequate antitrust oversight contributed to the current crisis in the first place. Varney intends to minimize the importance of preserving possible market efficiencies in an alleged attempt to protect consumer welfare, as if the two are mutually exclusive.
At its essence, antitrust policy is economic regulation. It is used to justify restraints on business practices and deny the rationality of people in their financial decisions.
We can only hope that the application of this regulatory change will not stall a turnaround in deal-making in the oil patch and the economic recovery that often follows.
Natalie Regoli is an energy attorney in Houston.
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