NEW YORK (TheStreet) -- The possibility that Halliburton (HAL) might acquire acquire rival oil services operator Baker Hughes (BHI) delights investors who love the possibility of a giant merger.
But truth be told, a combination between these two Houston-based companies is questionable on both grounds of price and strategy.
For one, a merger between Halliburton and Baker Hughes is likely to generate a bundle of thorny anti-trust issues leading to all sort of conditions and divestments. Secondly, the possibility of global emissions standards would only complicate the task of generating synergies between two enormous companies at a time of declining energy prices.
That these two companies are talking was confirmed in a statement from Baker Hughes on Thursday after the close of trading in New York.
Let's look at the question of emissions standards. Earlier this week, the U.S. and China, the world's two largest economies, announced more aggressive targets aimed at cutting carbon emissions. Whether or not that leads to lower emissions output remains to be seen but the fact that both governments are increasingly focusing on renewables, should be cause for concern for both Halliburton and Baker Hughes.
Then there's the likelihood of regulatory push-back. Washington has already hit the eject button on large telecom mergers, and is likely to slap heavy conditions on Comcast (CMCSA) buying Time Warner Cable (TWC) .
Halliburton, with a market capitalization of $46 billion, buying Baker Hughes, market cap of $24 billion, is really not much different. Baker Hughes is the third-largest player in the space, so gobbling them up would leave Schlumberger (SLB) as the only other major player in town. It might make morestrategic sense for Halliburton to acquire a smaller rival such as Weatherford (WFT) .