Anyone sweating his monthly utility bill or car payment probably cannot come close to identifying with Halliburton Co. (NYSE: HAL).

On May 4, the services giant will pay $3.5 billion to rival Baker Hughes Inc. (NYSE: BHI) after the two companies agreed to break off a merger agreement that began in November 2014.

The final stone in the deal’s sarcophagus appears to have been set in place by the U.S. Department of Justice (DOJ), which filed an antitrust lawsuit April 7. The deal, initially valued at $35 billion, is the largest in recent memory to collapse, and perhaps one of the largest ever, to flop.

The companies will now have to catch up with the industry, which has made vast changes since the merger clock first started ticking.

After the federal lawsuit—which cited the deal as a potential threat to oil and gas competition, prices and innovation—was filed few expected the transaction to continue.

Ken Sill, senior analyst at Seaport Global, told Hart Energy thought the deal had a chance as Halliburton was willing to divest enough businesses, in his view.

However, after seeing the DOJ’s antitrust suit, there appeared to be a “big political element, which I had suspected.”

“Clearly the DOJ was not going to approve the merger no matter what,” he said, adding that the DOJ antitrust charge seemed uninformed. “I was stunned by the lack of knowledge shown by the DOJ’s position.”

Sill said another factor was that Halliburton could not bring GE Oil and Gas to the table to demonstrate a legitimate buyer that could counterbalance the mass of a combined Halliburton and Baker Hughes to alleviate DOJ concerns.

“What killed this was HAL couldn’t find a buyer they could put up and say would be competitive,” he said. Both companies said in a statement that they expected shareholders, customers and other stakeholders to benefit from the merger.

However, “challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action,” said Dave Lesar, Halliburton’s chairman and CEO.

Despite disappointment, Halliburton remains strong, Lesar said.

“We are the execution company—our strategy, technologies and service quality are focused on helping customers maximize production at the lowest cost and driving industry leading growth, margins and returns.”

Martin Craighead, chairman and CEO of Baker Hughes, said both companies were unable to satisfy regulators in the complex, global-scale transaction.

“Ultimately, a solution could not be found to satisfy the antitrust concerns of regulators, both in the United States and abroad,” he said.

Baker Thaws

Baker Hughes said May 2 it will use part of its $3.5 billion breakup fee to pay debt and buy back stocks.

The company intends to repurchase $1.5 billion of shares and pay down $1 billion of debt. It also plans to refine its $2.5 billion credit facility, which expires in September.

Both companies must now pick up the literal and figurative pieces of their respective empires.

However, both companies are “18 months behind the rest of the industry,” after their respective assets remained in antirust limbo worldwide.

With $2.5 billion already spoken for, Baker Hughes is “certainly not going on a big acquisition spree,” he added.

Baker Hughes said it would immediately remove “significant costs that were retained in compliance with the former merger agreement.”

The company is also evaluating broader structural changes to further reduce costs and improve efficiency, which will allow it to better serve the rapidly shifting global market.

The initial phase of the cost reduction efforts is expected to result in $500 million of annualized savings by year-end 2016, the company said.

Baker Hughes also won’t battle for market share for now, instead focusing on retention of “a selective footprint in its U.S. onshore pressure pumping business while preserving the flexibility to expand for the right opportunities.”

Moody’s Investors Service is reviewing Baker Hughes for a potential downgrade, it said. Baker Hughes' competitive position and cash flow potential, including the extent and timing of anticipated cost reductions and broader structural changes will be examined.

Oilfield service industry conditions have weakened considerably since the acquisition was announced in November 2014. Since then, the U.S. rig count for April has plummeted by about 80%.

Bank Left

Halliburton’s next move may need pruning. The company is holding onto about $300 million per annum in costs due to the merger, Raymond James analyst J. Marshall Adkins said in a May 2 report.

“While the $3.5 billion termination fee would be a headwind, we note this has already been financed through the company’s recent debt offering in anticipation of the merger and would leave the company at just 27% net debt to cap,” he said.

Sill said that Halliburton had raised $7.5 billion of long-term debt to fund the merger.

While the company wanted many of the service lines Baker Hughes possesses, such as artificial lift and various drilling technologies and production chemicals, the problem is few other public companies can offer the same product lines on a similar scale, he said.

“I don’t think they will try to make another large acquisition,” he said.

Halliburton will hold a conference call May 3 to discuss the merger termination.

Halliburton’s operational focus will remain on North American completions and the company’s best-in-class NAM supply chain, which should help the company rapidly scale activity and margins in a recovery.

Bill Herbert, senior research analyst for Piper Jaffray & Co., said Halliburton is the “cheapest, highest quality way to invest in the recovery of NAM unconventional activity.”

Seaport Global said any merger-related restrictions on buying shares of both companies should be lifted with the formal announcement that the merger agreement has been terminated, and investors should consider buying shares of both companies, given “our view that a multi-year recovery in North American upstream spending will follow the current downturn, likely starting in late 2016 or early 2017.”

Darren Barbee can be reached at dbarbee@hartenergy.com.