The much-delayed merger of Baker International and Hughes Tool was formally completed Friday, creating a new company with more than $2 billion in annual revenues and a leadership position in the manufacture of oil-drilling equipment.
The merger, designed to enhance the ability of the joined companies to survive the current depression in the oil-service industry, was accomplished through a $1.2-billion stock transaction.
Consummation of the deal seemed to be in jeopardy just a few weeks ago when the companies were at loggerheads over terms of a Justice Department consent decree meant to forestall anti-competitive repercussions of the merger.
Ultimately, both companies agreed to the sale of Baker's domestic electrical submersible pump operation and of most of Baker's highly valued Reed Tool division, a major manufacturer of rock bits used in oil-well drilling.
"The consent decree was signed and filed today," James D. Woods said Friday in reporting completion of the transaction. Woods is chief executive officer of the newly formed Baker Hughes Inc.
Baker Hughes stock will begin trading on a "when issued" basis Monday on the New York Stock exchange, with a new ticker symbol, BHI.
Woods said he was "delighted" that the merger finally was reality. Woods formerly was chief executive officer of Baker, which in late February moved its executive staff from Orange to Houston--corporate headquarters for Hughes Tool and now the headquarters for Baker Hughes Inc.
Wood said he expects that the consolidation of facilities and staffs will save the new company more than $50 million in its first year. "It will take us about four quarters to get this thing in the black," he said. Woods said he is not yet prepared to say how many plants will be closed or how many people will be laid off in the process.
One of Baker Hughes' chief competitors, Newport Beach-based Smith International, meanwhile is waiting to see if the management of the new company will take steps to settle a patent infringement lawsuit in which Smith was ordered to pay a $205-million damage award to Hughes. That award is under appeal.
Oil service industry analysts had predicted that the former Baker management at the helm of Baker Hughes would be more willing than the former Hughes Tool management to accept reduced damages from Smith, which is in a Chapter 11 bankruptcy reorganization.
Loren Carroll, Smith's chief financial officer, said Friday that Smith hopes that the merger "might create a good atmosphere so we might have some settlement negotiations."
He added, however, that Smith still reserves its option to file a lawsuit challenging the terms of the Baker and Hughes merger.