Justice Dept. Conditions Opposed : Hughes Says U.S. Making Baker Merger Unlikely

Hughes Oil Tool Co. officials said Thursday that Justice Department objections to its proposed merger with Baker International Corp. make consummation of the deal on friendly terms an increasingly unlikely event.

“I’d say now the prospects are slim,” said Isaac Kerridge, Hughes’ vice president of shareholder relations.

The comment came a day after Hughes’ directors balked at conditions that the Justice Department is seeking to impose on the combination of the two major oil service firms.

Kerridge denied widespread speculation among industry analysts that Hughes simply has gotten cold feet and wants out of a merger, which would put Baker management at the helm of the combined companies.

Instead, Hughes spokesman Donald King said, the conditions posed by the Justice Department, which might require Baker to sell its drill bit and electrical submersible pump divisions, are important because they could cost the combined companies the majority of projected savings from the merger.

King said the Hughes directors oppose the Justice Department’s requirement that until the Reed division is sold, the newly merged Baker Hughes company would have to set up a line of credit in advance to offset any losses from the division and finance any of the division’s capital expenditures.

He added that Hughes’ directors voted unanimously to reject the Justice Department’s terms because the 90-day time limit placed on selling Baker’s domestic tricone bit operation and “certain international assets” was too short.

Moreover, they objected that the Justice Department would have “absolute veto power” to disqualify any potential buyer.

At least one analyst also said Hughes officials have complained that the Justice Department seems to want guarantees that a combined Baker and Hughes won’t destroy through competition any company that purchases Baker’s drill bit units.

Earl A. Stolz, an oil service analyst with Howard, Weil Financial Corp. in New Orleans, said Kerridge told him that Hughes’ objections revolve around Justice Department demands for guarantees that whatever company buys Reed’s assets will survive the first several years of competition with Baker/Hughes and other rock bit manufacturers.

Under the Justice Department’s conditions, King said, if a buyer is not found and accepted by the Justice Department within the first 90 days, Baker would be required to sell all of its Reed division, including its international tricone bit business. If still no buyer could be found, a trustee would be appointed to sell the division. “He would have no obligation to stockholders or to get a fair price,” King said.

Baker’s directors have agreed to the Justice Department’s conditions, and its shareholders have voted in favor of the merger with Hughes.