Baker Hughes Inc.and BJ Services Company have announced that their Boards of Directors have approved a definitive merger agreement, which represents a transaction value of $5.5 billion for BJ Services based on closing stock prices on August 28, 2009.

The agreement represents a premium to BJ Services stockholders of 16.3 percent over the closing price of BJ Services stock on August 28, 2009. Under 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.

Upon closing, and reflecting the issuance of new Baker Hughes shares, BJ Services stockholders collectively will own approximately 27.5% of Baker Hughes' outstanding shares.

"The transaction further enhances Baker Hughes' position as a top-tier global oilfield services company," said Chad C. Deaton, Baker Hughes chairman, president and chief executive officer.

"BJ Services broadens our portfolio by adding products, technologies and talented people that are key to helping our customers unlock value in their reservoirs, particularly in 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.

"Our two companies have highly complementary products and services with very little overlap. Baker Hughes has a long record of partnering with BJ Services on major projects. The proposed merger will make Baker Hughes a stronger, more efficient service provider for our customers worldwide, by integrating pressure pumping with Baker Hughes' 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.

The Baker Hughes Board of Directors will be expanded to include two BJ Services Board members.

Although pressure pumping accounted for less than 1 percent of Baker Hughes' revenues in 2008, it is expected to generate approximately 20 percent of the combined company's revenues, providing Baker Hughes with revenues from pressure pumping that approaches its two largest competitors. Pressure pumping has grown in importance as customers have looked for new ways to unlock the full value of their reservoirs. The number of fields requiring pressure pumping services is expected to grow, especially outside of North America, where BJ Services can leverage Baker Hughes' extensive international presence as it pursues growth opportunities.

Stockholders have yet to approve the deal, but the transaction is seen closing as soon as the end of the calendar year.

Tags: Baker Hughes, BJ Services