Hughes Rejects Justice Dept. Terms for Baker Merger; Action Could Scuttle Deal

Directors of Hughes Tool on Wednesday rejected as “unreasonable” conditions that the Justice Department has sought to impose on its proposed merger with rival oil services firm Baker International. The last-minute action could scuttle the $1.2-billion deal.

Hughes’ objections relate to “the process and terms” and “scope” of divestitures being required by the Justice Department, the company said in a prepared statement Wednesday.

The Justice Department has threatened to file a lawsuit to block the merger between Orange-based Baker and Houston-based Hughes--two of the nation’s largest producers of oil field drilling equipment--unless Baker agrees to sell all or portions of its electrical submersible pump and tricone rock bit businesses.

“Mystified” by Position

Hughes said Wednesday that it considers the required divestiture of “certain international assets” to be “unacceptable.” The company did not identify those assets, although they are widely believed to be the international tricone bit operations.

Baker Vice President Ronald G. Turner said he was “mystified” by Hughes’ position. He said Hughes was reacting to the latest draft of a proposed consent decree, which both Hughes and Baker had received from the Justice Department late last week.

Baker’s directors agreed to accept the terms of the consent decree Wednesday morning. Then at a specially convened shareholders meeting an hour later, the company reported that Baker shareholders had voted to approve the merger, pending concurrence by Hughes shareholders and the Justice Department.

But even before the Hughes announcement, Baker Chief Executive Jim D. Woods and Chairman Earnest Hubert Clark Jr. acknowledged that Hughes directors appeared to have some concerns about the Justice Department’s proposed merger conditions.

Last Friday, for instance, Hughes postponed a shareholders meeting to approve the merger that it had originally scheduled to coincide with Baker’s Wednesday shareholder meeting.

At that time, Hughes said its directors wanted an opportunity to review the terms and any possible consequences of the consent decree.

In recent weeks, Baker has consistently spoken more optimistically than Hughes about prospects for a speedy resolution of the Justice Department’s antitrust objections to the merger.

Last week, Baker announced that as a first step toward satisfying the Justice Department’s concerns, it had agreed to sell its domestic electric submersible pump business to Trico Industries for an undisclosed price. That transaction also would have to be approved by Hughes and Baker shareholders and by the Justice Department.

Situation Looks Bad

“It looks bad,” said Jim Carroll, an oil services analyst with Paine Webber, about the prospects for the merger following Hughes’s announcement.

But Hughes spokesman Donald King said the company’s position does not “necessarily” spell the destruction of the merger. “We at Hughes at least are willing to negotiate with Justice,” he said. “But we have no indication the Justice Department is willing to change its position.” Justice Department negotiators could not be reached for comment.

While the future of the Baker-Hughes merger appeared shaky Wednesday, moving vans were being loaded at Baker’s headquarters in Orange, which the company previously said it would close.

Spokesman Turner said the Orange offices will close Friday, and most of Baker’s executives will report to work Monday in Houston, just a few miles from the corporate headquarters of Hughes Tool.

“Our move to Houston is not contingent on the merger,” Turner said. If the merger is completed, he added, the combined company would be consolidated into the Baker facility and the current Hughes corporate offices would be subleased.

In its statement, Hughes said it “will be consulting with Baker as to appropriate steps for both companies to take.” King said he expected that the managements of both companies will meet today. At the Baker shareholders meeting, Woods said the Hughes directors seemed to be most concerned about a 90-day deadline that the Justice Department has set for Baker to sell its domestic tricone bit operation.

May Sell Whole Unit

If no buyer for that business acceptable to the Justice Department can found within 90 days, Woods and other Baker officials said, Baker would be obliged to put its entire Reed Tool Co.--including its profitable international tricone bit and its domestic and foreign mining and polycrystal diamond businesses--on the block.

Under the Justice Department’s requirement, Woods said, Baker would have another 90 days to sell the worldwide Reed Tool division, after which it would be placed into a trust and operated separately from Baker.

Baker officials said they were optimistic that they will be able to find a qualified buyer for the domestic tricone bit business within the allotted 90 days.