Hughes Changes Its Mind Again, Says It Will Reopen Merger Talks With Baker

In a surprise turnabout, Hughes Tool Co. reversed its decision of the day before and said Thursday that it will reopen negotiations to complete a proposed $1.2-billion merger with Baker International.

Hughes’ sudden flip-flop may have come as a result of pressure from major shareholders who believe that the merger is the only way to improve the finances of the ailing oil services company, according to several Wall Street analysts.

“The major institutional shareholders are up in arms,” said James Crandell, oil services analyst for the New York investment firm of Salomon Bros. “I’ve spoken to a lot of the owners of the company and to a shareholder; they are livid about this.”

The reversal also came on the heels of a lawsuit filed by Baker late Wednesday seeking to force Hughes directors to complete the massive transaction.

Bluff That Backfired?

Hughes Chairman William A. Kistler Jr. would not say specifically why directors voted to reconsider their decision on Wednesday afternoon to end merger talks.

But one source close to Hughes indicated that the move may have been a bluff that backfired.

Hughes had objected to the way Baker wanted to settle antitrust concerns about the merger that had been raised by federal regulators. The Justice Department wanted the two companies to shed certain operations to reduce their dominance of key drill bit and pump markets.

The source said Hughes directors put forward their own settlement plan and told Baker to accept it or the merger would fail. Baker rejected the proposal but insisted that the merger negotiations continue. And it backed up that stance with the lawsuit.

“The directors were completely knocked off their feet (by Baker’s response),” said P. Dexter Peacock, a director and attorney for Hughes. Peacock said Hughes directors had expected that Baker would accept their plan.

Baker Vice President Ronald G. Turner said Baker, anticipating such a last-minute move, had prepared its lawsuit earlier in the week and filed it just 15 minutes after Hughes delivered its ultimatum.

In the lawsuit, Baker blamed Hughes’ reluctance in pursuing the merger on “the self-interested concerns of Hughes management,” which would be required to yield control of the combined Baker-Hughes company to Baker’s management.

Meeting Convened

Baker, which moved its headquarters from Orange, Calif., to Houston earlier this week, also alleged in the lawsuit that it believes Hughes’ shareholders have “voted overwhelmingly” in favor of the merger.

Hughes convened an oft-postponed special meeting of shareholders Thursday morning in Houston to vote on the merger plan, but no vote was taken. That provoked Douglas Doty, Baker assistant treasurer, to demand that management reveal how many shareholders had already voted by proxy in favor of the deal.

But by exercising those proxies, management was able to quash that motion and postpone disclosure of the shareholders’ vote until next week.

Kistler said at the meeting that only outside directors who have never been employed by the company voted Wednesday to break off the merger rather than accept the Justice Department’s conditions. The same outside directors, he said, had second thoughts Thursday and decided to try to strike a compromise.

Baker officials said that although they are willing to continue talks with Hughes, they will also proceed with the lawsuit.

“My attitude is that Hughes had better do it,” said Philip K. Meyer, oil services analyst for the New York investment firm of Eberstadt Fleming. “They are going to have a lot of teed-off shareholders if they queer the deal.”

In trading on the New York Stock Exchange Thursday, Hughes stock closed at $11.25 a share, up 25 cents. Baker shares closed at $15.75, up 37.5 cents. Hughes was the seventh-most active issue on the Big Board for the day, with 1.7 million share changing hands.

Leslie Berkman reported from Houston and Robert Hanley from Los Angeles.