Baker Expects Big Savings in Merger With Hughes Tool
Baker International expects its proposed $1.2-billion merger with Hughes Tool to save the combined companies $65 million to $80 million a year.
Baker President James D. Woods said in an interview that even if drilling activity and oil prices stay at current depressed levels, the annual cost savings would allow the new firm “to break even and perhaps go into the black” within a year to 15 months.
For the first nine months of the current fiscal year, Hughes lost $507.5 million while Baker lost $250 million. The two figures reflect large writedowns.
Most importantly, he said, the merged company would be well-positioned to benefit from even a modest upturn in the market. “I have to believe, someday this industry will get better,” said Woods, who would serve as chief executive of the combined companies to be called Baker Hughes and headquartered in Houston.
Woods predicted that in the next 12 months there will be a tremendous increase in “consolidations, closures and bankruptcies” of oil service firms no longer able to sustain losses.
Woods said that Baker, which is based in Orange, is considering purchasing certain divisions of three much smaller oil service firms which he declined to identify.
Common Consideration
“I would say almost every company in this industry probably has under evaluation some sort of joint venture or consolidation,” he added.
Woods said it would be inappropriate to describe at this time exactly what cost-saving measures he would enact as chief executive of the combined company. However, he said that in general the merged companies would cut losses by slashing their combined production capacity in half.
That would entail eliminating some overlapping facilities and operations and making further staff reductions, he said.
“The name of the game . . . is utilization of capacity,” said Woods. “You have to consolidate.”Woods said that he and Hughes Tool President W. A. Kistler Jr. began to seriously discuss a possible merger last May, after several months of preliminary meetings. The two companies, he said, had independently begun to examine each other’s operations and finances about one year ago, in the face of a persistent worldwide oil glut and a steep decline in domestic oil drilling operations.
Describing the alliance as “a perfect fit”, Woods said both companies were interested in strengthening four core business areas: drill bits, drilling fluids, drilling completion equipment and electrical submersible pumps.
50% of Compltetion Equipment
Woods said the two companies together represent about a 49% worldwide market share of drilling bits, 16% of drilling fluids, 50% of completion equipment and 30% of electrical submersible pumps. But, he added, companies usually lose some of their combined market share after a merger.
He noted that the proposed alliance still must be approved by federal regulators and by Baker’s shareholders. He said the two companies are just “engaged” and “not sleeping together yet.”
