Baker Hughes to buy rival in oilfield services for $5.5B

Oilfield services company Baker Hughes said Monday that it will buy BJ Services bjs 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 bhi in 2010 and $150 million in 2011, and add to earnings per share in 2011.

Baker Hughes Chairman, President and CEO Chad 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% of Baker Hughes 2008 revenue, but is expected to comprise about 20% 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. Schlumbergerslb is the world's largest oilfield services company, with Halliburtonhal 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% premium to BJ's $15.43 Friday closing stock price, the companies said.

BJ's shareholders will have an approximately 27.5% 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.

ExxonMobil, BP 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% 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.