U.S. Justice Dept. will sue to stop Halliburton, Baker Hughes merger - source

The U.S. Justice Department will file a lawsuit as soon as this week to stop oilfield services provider Halliburton Co from acquiring smaller rival Baker Hughes , a deal that would combine the No. 2 and No. 3 oil services companies, a source familiar with the matter said.

Share prices for Baker Hughes were down 6 percent at $38.99 at midafternoon Tuesday while Halliburton was up about 1 percent at $34.34.

The two sides had been discussing asset sales aimed at saving the deal, which was announced in November 2014. In January, Halliburton told regulators it was prepared to sell assets with combined 2013 revenue of $5.2 billion.

Halliburton and Baker Hughes both declined comment on Tuesday.

If the deal collapses due to antitrust concerns, Halliburton must pay Baker Hughes a $3.5 billion breakup fee, according to regulatory filings.

The proposed deal has also hit headwinds in Europe, where the EU competition authority was concerned that the proposed merger would reduce competition and innovation in more than 30 product markets, both offshore and onshore.

As far back as July 2015, Reuters reported that a source close to the probe said there were concerns among U.S. antitrust enforcers that the tie-up of the two companies in the oilfield services industry would lead to higher prices and less innovation.

The Justice Department's worry at that time focused on two areas, the source said. One was that the drilling technology businesses would go to small companies that could not effectively compete with the two leaders. The other was that the leaders would have less incentive to innovate.

(Reporting by Diane Bartz and Ernest Scheyder; Additional reporting by Amrutha Gayathri; Editing by Diane Craft)