Almost from the beginning, Martin Craighead, the chief executive of Baker Hughes, worried about antitrust problems.
Under the threat of a hostile takeover, he agreed to negotiate the merger of his company with its larger Houston rival Halliburton, but as the talks proceeded, Craighead repeatedly warned the deal faced trouble with federal regulators.
Halliburton CEO Dave Lesar, however, expressed absolute confidence the merger would pass antitrust muster, forging ahead with a $35 billion deal to create the nation's largest oilfield services company and bring Halliburton closer to the global industry leader, Schlumberger.
For Lesar, then 61, the merger promised to be the capstone of a 20-plus-year career at Halliburton.
Two years later, Lesar's misreading of the antitrust climate proved among the most serious miscalculations he made in the determined pursuit of his magnum opus - miscalculations that doomed the merger and added to the carnage of the oil bust, costing many more jobs and billions more dollars beyond those exacted by commodity markets. Halliburton officials concede the $3.5 billion breakup fee they were obligated to pay Baker Hughes was largely responsible for a multibillion-dollar loss in the second quarter that contributed to another 5,000 layoffs.
Today, the companies, both of which have played prominent roles in Houston's economy and history, are diminished. Halliburton, while still a commanding presence in the industry, has scaled back its ambitions, no longer looking for a bold play to catch Schlumberger, but instead focusing on more efficiently and profitably providing the hydraulic fracturing and on-the-ground services it dominates in North America.
Baker Hughes, now a distant third, is desperately trying to reinvent itself. Hamstrung by the merger agreement, the company was unable to make cuts, divestitures and other adjustments that might have helped it to weather the worst of the oil bust and position it for the recovery in oil prices. Despite the $3.5 billion fee from Halliburton, Baker Hughes, which declined to comment, still lost nearly $1 billion in the second quarter and slashed another 3,000 jobs.
"It was very attractive if they'd been able to pull it off," Chris Ross, a University of Houston finance professor, said of the attempted deal. "It was a high-stakes bet and they lost - an expensive mistake for sure."
Interviews with Halliburton executives and analysts, and a review of regulatory filings, show that Lesar, his executive team, and his company became committed to the Baker Hughes deal at the height boom in the summer of 2014. Like so many others in the industry, they discounted how fast and how far oil prices would fall, even though prices had dropped 20 percent by the time they began negotiations with Baker Hughes in October 2014 and then another 12 percent when they announced the deal about a month later.
Halliburton executives also became convinced they could win approval of a merger that would leave the combined company and Schlumberger with a virtual duopoly, controlling up to 90 percent of more than 20 markets. Regulators had approved several mergers, including multiple airline consolidations in the previous years, which analysts believe Halliburton executives took as evidence they could get their deal through. But they missed signals in these cases that the attitudes of antitrust officials toward mega mergers were quickly changing.
Lesar declined to be interviewed. But Halliburton President Jeff Miller, elevated to his post in mid-2014, said these issues only became obvious in hindsight. At the time, the rewards of eliminating a key competitor, gaining market share, and adding new products and services seemed to more than justify the risks - risks that have been largely borne by shareholders and employees.
"We had our eyes wide open going into this," Miller said in an interview with the Houston Chronicle. "We had no illusions about how difficult this transaction would be to do, but firmly believed it was doable."
Costly failures in corporate American mean "heads typically roll in such circumstances," Ross said, but Lesar still remains firmly in power, entrenched as both chief executive and chairman with a friendly board of directors. Still, there are signs that Lesar may be a little less secure as a result of the failed merger. Halliburton recently disclosed in a regulatory filing that it changed its bylaws to allow the largest shareholders to nominate their own directors, a move that could eventually mean a less friendly board.