Apr 07, 2016 06:32 AM EDT

U.S. Government Blocks Halliburton-Backer Hughes Merger For Being Anti-Competitive

The United States government has filed a lawsuit on Wednesday to prevent Halliburton Co. from acquiring Baker Hughes Inc., claiming that the merger of the number 2 and number 3 oil services companies would result in higher oil prices.

This legal action which comes after several months of discussions on the divestments of a number of overlapping businesses of the two firms considerably reduces the risks of consummating the deal.

According to the Justice Department, combining the two companies valued at $35 billion would leave just two major suppliers in 20 business lines in the world's oil construction  services industry and well drilling, with one of the two being Schlumberger NV.

If the merger is completed it would give the two companies over 50 percent market share of onshore fracking plugs and offshore well cementing businesses. In two cases, the merger will get over 80 percent market share.

But the two merging companies said that they will contest the Justice Department's efforts to stop the deal. They claim that the government has arrived at a wrong conclusion in examining their transaction and deciding that the merger is counterproductive considering the challenges which the global energy industry is now facing.

The proposed merger was announced in late 2014 but from the start, many problems have delayed its consummation. One such problem is that the two Houston-based oil services companies failed to get the approval of the DOJ for the different plans they submitted to guarantee that the merger would defeat antitrust issues.

"The proposed deal between Halliburton and Baker Hughes would eliminate vital competition, skew energy markets and harm American consumers," said Loretta E. Lynch, the Attorney General. 

"Our action makes clear that the Justice Department is committed to vigorously enforcing our antitrust laws.  In the days ahead, we will continue to stand up for fair deals and free markets, and for the American people we are privileged to serve," she added.

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