Baker Hughes To Buy BJ Services

Earlier today, Baker Hughes, Inc. (BHI) and BJ Services (BJS) announced a definitive agreement for a stock and cash merger, which represents a transaction value of $5.5 billion for BJ Services based on closing stock prices on August 28, 2009. Post-merger, Baker Hughes shareholders will own approximately 72.5% of the combined entity, with BJ Services shareholders owning the rest. The Baker Hughes Board of Directors will be expanded to include two BJ Services Board members.

In addition to saving significantly on costs, shareholders of both companies get a more diversified oilfield services exposure. BJ Services shareholders get exposure to the much more stable top-tier global oilfield services over and above its existing pressure pumping services. Baker Hughes shareholders will get open to more efficient oilfield services by integrating pressure pumping with the company’s wide range of products and services.

Baker Hughes expects to realize annual cost savings of approximately $75 million in 2010 and $150 million in 2011 as it eliminates redundant costs, consolidates facilities and further rationalizes field costs. Baker Hughes expects the combination to be accretive to earnings per share in 2011.

Under the terms of the agreement, BJ Services stockholders will receive 0.40035 shares of Baker Hughes and cash of $2.69 in exchange for each share of BJ Services common stock. The agreement represents a premium of 16.3% to BJ Services stockholders over the company’s closing price on August 28, 2009. The merger is expected to close at the end of this calendar year.

Baker Hughes has been dynamic in plugging holes in its product line-up through bolt-on acquisitions. Post-merger, the company expects to generate nearly 20% of the merged company’s revenues from pressure pumping services. Pressure pumping has grown in importance as customers have looked for new ways to unlock the full value of their reservoirs. We believe that the merger has positioned Baker Hughes to better capitalize on the current oilfield cycle.

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