After winning what it called important concessions from the Justice Department, Hughes Tool Co. on Wednesday accepted the overwhelming vote of its shareholders and took steps to go forward with its proposed $1.2-billion merger with Baker International.
The moves followed weeklong negotiations with the Justice Department to hammer out a revised consent decree that requires the combined company to divest important drill bit and pump operations.
The Justice Department agreed to give Baker Hughes--as the new company is to be called--at least six months and as long as nine months to sell the two units.
The government originally had given Baker Hughes three months to divest its bit operation, which regulators contended would have given Baker Hughes an unfairly large share of the domestic market. The submersible pump operation already has been sold.
The Justice Department also agreed late Tuesday night to set a $10-million cap on the working capital that Baker Hughes will be required to provide to the business units that it is selling. "It sets a limit on how much blood we have to give," said Dexter Peacock, Hughes outside counsel, in an interview.
Although Hughes officials last week said that meeting the Justice Department's requirements were making the merger unworkable, antitrust regulators said Wednesday that they always viewed the terms of the consent decree as open to modification.
"Our main aim has always been to insure that there would be a divestiture of a viable entity within six months," said Roger Andewelt, deputy U.S. attorney general in charge of litigation. "The terms of how we would meet our requirements were subject to negotiation."
In fact, when Hughes said it was calling off the merger talks last week, regulators were taken aback, Andewelt said. "We always viewed them as fluid negotiations," he said. "Frankly, we were surprised that the talks broke down."
Hughes and Baker officials estimated that the merger will be completed in two to three weeks, or just as soon as the Justice Department's modified consent decree is put in final form and filed.
After announcing the agreement, Hughes held its oft-delayed meeting of stockholders and reported that 75% of the company's shares had voted in favor of the merger.
Officials of both companies said that despite the divestitures required by the Justice Department, the benefits from consolidation of the remaining facilities and staffs will save them between $45 million and $65 million a year.
Hughes Chairman William A. Kistler Jr. told shareholders, "We think that in the third full quarter after the merger we should see something close to a break-even." In the most recent fiscal nine months, Hughes lost $507 million and Baker lost $250 million.
A week ago, Hughes threatened to back out of the long-anticipated merger when Baker rejected its proposal that was designed to avoid conditions in the Justice Department consent decree that Hughes considered too onerous.
After the announcement, Hughes shares gained $1 in active trading on the New York Stock Exchange to close Wednesday at $13 a share. Baker stock, by contrast, fell 62.5 cents in Big Board trading to close at $16.125 a share.