Baker Hughes announced on Monday, August 31 that they would purchase BJ Services Co. in a cash-and-stock deal valued at $5.5 billion. Baker Hughes announcement is not necessarily a surprise, although a deal of this size seemed unlikely. As the price of oil continued to fall in 2008, there was much speculation about what companies would be snapped up on the cheap. For Baker Hughes, this merger should provide increased international exposure, as well as long-term positioning for the future with access to tech
Stated by Bake Hughes CEO, Chad Deaton, the deal “will better position us to drive international growth and to compete for the growing large integrated projects by incorporating pressure pumping into our product offering,”. BJ Services has a strong play in pressure-pumping services, which is needed in wells to stimulate production. Pressure pumping is also critical to the exploration & production process of non-conventional development of tight gas and shale gas. It's expected that the acquisition will drive a combined company revenue of 20 percent versus only one percent (prior to the acquisitions) from the pressure pumping.
The acquisition is expected to produce $75 million in cost savings for Baker Hughes in 2010 and $150 million in 2011, and add to earnings per share in 2011. The acquisition has been approved by both companies' boards, but it still needs the approval of shareholders from both companies.
The combined market capitalization of the new companies is expected to be approximately $16.3 billion. Schlumberger and Halliburton have another competitor in their ring, albeit not fully at the same level. However, Schlumberger and Halliburton may retain an edge not only in the equipment services area, but they have more comprehensive solutions around real-time technology, and information management (collaboration and knowledge management). Baker Hughes is taking a bet on non-conventional as a long-term competitive edge for the company. While Baker Hughes is expanding its portfolio, there are still critical challenges related to collaboration and knowledge management in upstream that are not being addressed by oilfield service companies. Plus, this merger still raises the question -- will oil & gas companies ever have an oilfield service company that combines equipment and information service in one place?
This moves Baker Hughes into the same ring as Halliburton for market size. Yet, Schlumberger and Halliburton have greater IT capabilities for collaboration and knowledge management in the oil & gas industry. The big question is whether these large consolidations have proven to bring value to the industry. Is there a single vendor that can meet the needs of the exploration & production industry?
Will a bigger and more diverse Baker Hughes benefit the oil & gas industry? Does Baker Hughes portfolio of offerings meet some of the biggest challenges in the oil & gas industry?