On Monday morning, with Mr. Market feeling glum, even the announcement that oilfield services company Baker Hughes (NYSE:BHI) intended to buy its former spinoff BJ Services (NYSE:BJS) for $5.5 billion couldn't turn the mood around.
BJ's shareholders will receive about a 16% premium over what the company's shares closed at last Friday. Specifically, they will get 0.40035 shares of Houston-based Baker Hughes, along with $2.69 in cash for each share of BJ held. Once the acquisition is completed, BJ Services stockholders will hold about 27.5% of Baker Hughes shares. Baker Hughes has forecast $75 million in annual cost savings for 2010 and twice that amount in 2011. The combination is expected to add to Baker Hughes' earnings that same year.
I wouldn't be at all surprised if this first major services combination of 2009 weren't simply the initial shot out of the gun for other purchases in the oilfield services group.
But the key for now is the "fit" between Baker and BJ and the "why" of the merger. From my perspective, the key is the increased integration that BJ's pressure pumping operation affords to Baker Hughes, an area that it currently can't really offer, but the two largest oilfield service companies, Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL), can.
Indeed, last year pressure pumping represented a minuscule 1% of Baker Hughes' business. But after the companies merge, that relative weighting should increase to about 20%. Besides allowing Baker Hughes to compete for projects that require pressure pumping, one additional result should be an increase with which Baker is able to garner contracts from the operators that want to see one company handle a project from beginning to end.
In the meantime, I'm inclined to suggest that Fools watch Baker Hughes very carefully. I won't admit to the number of years I've followed the company, but it has typically been a top-notch organization. I only see that categorization improving with its new acquisition.
Indeed, Baker Hughes has been awarded five stars by Motley Fool's CAPS players. Why not drill down with your assessment of the company?
