Baker Hughes to Buy BJ Services for $5.5 Billion

Baker Hughes to Buy BJ Services for $5.5 Billion

Aug. 31 (Bloomberg) -- Baker Hughes Inc., the world’s third-largest oilfield-services provider, agreed to buy BJ Services Co. for $5.5 billion to expand its unconventional natural-gas, deepwater and pressure-pumping businesses.

The price represents a 16 percent premium to BJ Services’ stock price on Aug. 28 and will leave BJ stockholders owning about 27.5 percent of Baker Hughes’s outstanding shares, Houston-based Baker Hughes said in a statement today. BJ Services shareholders will receive 0.40035 share of Baker Hughes’s stock and a cash payment of $2.69 a share.

The addition of BJ Services, also based in Houston, will help Baker Hughes “compete for the growing large integrated projects by incorporating pressure pumping into our product offering,” Baker Hughes Chief Executive Officer Chad Deaton said in the statement. Pressure pumping is expected to account for about 20 percent of the combined company’s revenue, compared with less than 1 percent for Baker Hughes last year.

“The biggest part of BJ’s business is not an overlap with Baker,” said Philip Weiss, an analyst at Argus Research in New York who has a “hold” rating on the companies and doesn’t own their shares. “For BJ, it makes a lot of sense because I thought that it was kind of a disadvantaged player in this environment.”

Weiss said it appears that the valuations are “reasonable,” although he noted that BJ Services had climbed 32 percent this year in New York trading before today.

Pressure Pumping

BJ Services is the third-largest provider of so-called pressure pumping services, whereby slurry, often sand and water, is injected into a well to stimulate production. Unconventional- gas plays are those such as shale formations, which require horizontal drilling to break up rock.

The acquisition will add to earnings in 2011, Baker Hughes said. The company said it expects to realize cost savings of about $75 million in 2010 and $150 million in 2011.

Goldman, Sachs & Co. advised Baker Hughes on the deal. BJ Services was advised by Greenhill and Co. Baker Hughes’s board will be expanded to include two of BJ Services’ board members.

Baker Hughes fell 3.6 percent to $36.70 in pre-market trading. BJ Services rose 11 percent to $17.12. The companies said the deal could close as soon as the end of this year.

Halliburton Co. and Schlumberger Ltd., both based in Houston, are the largest oilfield-service providers.

(The companies started a conference call to discuss the deal at 8:30 a.m. New York time. To listen, dial +1-877-382- 1760.)

bloomberg