Baker Hughes to buy BJ Services

August 31, 2009 5:53:45 AM PDT
Oilfield services company Baker Hughes Inc. said Monday that it will buy BJ Services Co. in a cash-and-stock deal valued at $5.5 billion that the company said will allow it to drive international growth and compete for projects of companies engaged in all phases of the oil business. The acquisition is expected to produce $75 million in cost savings for Baker Hughes in 2010 and $150 million in 2011, and add to earnings per share in 2011.

Baker Hughes Chairman, President and CEO Chad C. Deaton said in a statement that the transaction will particularly help customers with unconventional gas and deepwater fields.

"It will better position us to drive international growth and to compete for the growing large integrated projects by incorporating pressure pumping into our product offering," he added. Integrated oil companies are active in all phases of the business including production, refining, transportation and marketing.

Pressure pumping made up less than 1 percent of Baker Hughes 2008 revenue, but is expected to comprise about 20 percent of the company's revenue after the deal is complete. Pressure pumping is used, in part, to increase the amount of recoverable oil or gas from wells. This added business will boost Baker Hughes total revenue near levels of its two largest competitors, the company noted. Schlumberger Ltd. is the world's largest oilfield services company, with Halliburton Co. just behind it in size.

BJ stockholders will receive 0.40035 shares of Baker Hughes and $2.69 in cash for each share they own. The deal represents a 16.3 percent premium to BJ's $15.43 Friday closing stock price, the companies said.

BJ's shareholders will have an approximately 27.5 percent stake in Baker Hughes once the acquisition closes, and two BJ services board members will join Baker's board.

The is the first major oil services takeover of the year. After larger oil companies reaped hefty profits from last year's crude and gas price rally, some analysts predicted that crumbling stock and crude prices would make smaller oil and gas companies potential takeover targets.

Exxon Mobil Corp., BP PLC and other oil giants find it increasingly difficult to secure new sources of fossil fuels the old-fashioned way - by simply exploring and drilling for them.

Smaller producers that don't have the same massive capital reserves have been stung by a credit crisis that's severely limited or even paralyzed their ability to finance new exploration and production.

In July BJ Services posted a net loss for its fiscal third quarter, citing declining demand for oil and natural gas amid global economic weakness.

The company reported a fiscal third-quarter loss of $32.3 million compared with earnings of $141.8 million during the same period last year.

Revenue slid 41 percent to $786.9 million.

The acquisition, which has approval from both companies' boards, may close by year's end. It still needs the approval of both companies' shareholders.

Shares of Baker Hughes fell $1.21, or 3.2 percent, to $36.88 in premarket trading. BJ Services shares jumped $1.67, or 10.8 percent, to $17.10 before the opening bell.

More money-related links:

Load Comments