The old joke about antitrust goes like this. Three business owners are in prison, discussing how they ended up there. The first one says, “My prices were too high and they arrested me for price gouging.” The second one says, “My prices were too low and they arrested me for lowballing.” The third one says, “My prices were the same as everyone else’s and they arrested me for violating antitrust laws.”

With the $34.6 billion merger between Halliburton Co. (NYSE: HAL) and Baker Hughes Inc. (NYSE: BHI) called off due to opposition from the U.S. Department of Justice, one wonders why companies ever engage in spin-offs and asset sales voluntarily if merging is so monopolistic and anticompetitive. The classic antitrust joke may seem silly to those who consider such laws beneficial, but it does raise the question of whether a trust is objectively definable, or whether it is only the collective subjective opinions of various unelected bureaucrats in the Justice Department who have no expertise in the industry they oversee.

The deal was originally conceived in November 2014, when the oil collapse was just gathering steam and nobody knew where the bottom would be, certainly not those in the Justice Department at least. Perhaps the leaders of Halliburton and Baker Hughes saw trouble on the horizon and that’s why they went public about merger plans 18 months ago. In any case, we are now 18 months later, Halliburton’s debt has doubled, it has suffered a $2.5 billion goodwill impairment and has reported its first annual loss since 2004. As for Baker Hughes, it lost nearly $2 billion in 2015, its first annual loss since way back in 1998 when oil hit $10 a barrel.

Important to note is that neither company suffered a net annual loss during the 2008 to 2009 financial crisis and oil crash. But now, both are, and Baker Hughes is being particularly hard hit.

The situation is eerily reminiscent of the American Airlines/US Airways merger in 2013. The Justice Department fought that one tooth and nail as well on the same anticompetitive grounds but lost because when stacked up against reality, the anticompetitive claim was ludicrous. American was already bankrupt and had lost over $10 billion in the 10 years between 2001 and 2010. As for US Airways, it had already declared bankruptcy twice in 2003 and 2004.

American was able to get the unions on board with its merger though, because it had threatened to cut 13,000 union jobs otherwise, and the unions understood that they were risking killing the goose. With the unions on American’s side, the Justice Department backed down and settled, probably after realizing that putting the merger off would cause at least one of the companies to eventually completely implode and have its capital sold off to the other anyway. The effect would have been a de facto merger.

Companies merge when they believe they can achieve higher efficiency under one roof. They engage in spin-offs when they believe they can be more efficient separately. Much more reflective of the health of competition is the actual hard numbers rather than the opinion of powerful but disconnected bureaucrats, and the numbers for both Halliburton and Baker Hughes are pretty bad right now, much worse than 2008.

This merger fell through not because it would have been anticompetitive. It fell through because neither Halliburton nor Baker Hughes is in existential danger, at least not yet. If and when one of them is, the merger could be brought up again and go through, but it would have saved everyone much time and resources if it were simply allowed now, before losses become too steep and multiple bankruptcies declared, as in the case of American and US Airways in 2013.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.