US antitrust officials filed suit Wednesday to block Halliburton's proposed $34.6 billion takeover of rival Baker Hughes that would create a global oil services giant.
The Justice Department said the proposed merger, agreed in response to plunging oil prices, would eliminate competition, raise prices and reduce innovation in the oil services business.
Halliburton and Baker Hughes said they would "vigorously contest" the case.
The deal, announced in November 2014, would join the world's number two and number three oil services companies, creating a powerful rival to global leader Schlumberger.
Halliburton in 2015 had revenues of $23.6 billion, while Baker Hughes had revenues of $15.7 billion. Schlumberger's revenues were $35.5 billion.
The Justice Department said the transaction would eliminate head-to-head competition in markets for 23 products or services, creating a virtual duopoly for key oil services such as offshore well completions and on- and offshore cementing.
"This transaction is unprecedented in the breadth and scope of competitive overlaps and antitrust issues it presents," said assistant attorney general Bill Baer.
Baer said the deal would remove the incentives for two industry leaders to improve technology and that low oil prices do not justify a bad deal for consumers.
"We are certainly aware of what's happened to oil prices," Baer told reporters on a conference call.
"It's not a justification for an anticompetitive merger to say 'we're not doing as much business as we used and therefore we should become a monopolist or a near-monopolist in market after market.'"
Baer said the department made clear to Halliburton and Baker Hughes soon after the merger was announced 17 months ago that regulators were highly skeptical, but that it agreed to consider the remedies proposed by the companies.
However, department officials over time concluded the deal could not be salvaged, in part because Halliburton said it planned to keep key assets and personnel associated with operations that were to be sold.
Baer also said proposed remedy would have required Justice and US courts to devote "unprecedented" resources overseeing the antitrust remedies.
Halliburton and Baker Hughes said they would fight the government's case, which they said was based on a fundamental misreading of the fragmented nature of oil services.
The deal would provide customers with better access to top technology and lower the cost of producing oil, they said in a joint statement.
"The companies intend to demonstrate that the DOJ has underestimated the highly competitive nature of the oilfield services industry, the many benefits of the proposed combination, and the sufficiency of the divestitures," Halliburton and Baker Hughes said.
The companies said that they expect regulatory approvals of the deal by April 30 and that if the judicial review extends beyond that period, "the parties may continue to seek relevant regulatory approvals or either of the parties may terminate the merger agreement."
If the merger fails because of antitrust concerns, Halliburton is required to pay Baker Hughes a $3.5 billion breakup fee.
Baker Hughes shares rose 6.0 percent, while Halliburton climbed 5.9 percent.