BJ Services

BJ Services

BJ Services closing price of $15.43 a share on Aug. 28, it's still well below its highs of more than $30 a share during 2008 as Baker Hughes moves to take advantage of relatively low valuations in the sector. Baker Hughes /quotes/comstock/13*!bhi/quotes/nls/bhi (BHI 35.31, -2.78, -7.30%) said BJ Services /quotes/comstock/13*!bjs/quotes/nls/bjs (BJS 16.49, +1.06, +6.87%) shareholders will receive 0.40035 of a share of Baker Hughes as well as cash in the amount of $2.69 in exchange for each of their common shares. "The combination is not surprising given the complementary businesses between the two companies," analysts a Pritchard Capital Partners said. "We believe strategically Baker Hughes will help BJ Services capture international pressure pumping, and a diversified suite of services is also becoming more important as a competitive requirement with majors and larger independents."

"Strategically, taking Baker Hughes' money and running is good option for BJ Services," Tudor Pickering Holt analysts said. "(It) was going to be hard road for BJS given too much U.S. capacity will keep 2010 stand-alone earnings depressed." Baker Hughes expects to realize annual cost savings of approximately $75 million in 2010 and $150 million in 2011. Baker Hughes expects the combination to add to earnings in 2011. "Our two companies have highly complementary products and services with very little overlap," said Chad Deaton, chairman, president and chief executive of Houston-based Baker Hughes. Baker Hughes ranks as the heftiest hardware maker for drilling and BJ Services, a component of the Philadelphia Oil Service Index /quotes/comstock/10y!i:osx (OSX 173.11, -5.32, -2.98%) , specializes in gear and expertise for extracting oil and gas from shale both on land and off shore.

The Houston-based drill bit and oil services giant's acquisition comes as energy companies place bets that the worst of slack demand and credit woes are over and that activity will once again pick up. In a hopeful sign, Baker Hughes' weekly rig count rose by 14 rigs to 999 in the U.S. in the past week. Oil service shares have been fighting their way back from their lowest levels in five years the financial crisis and slowing economy created a supply glut in the energy markets, and much lower demand for drilling. "The transaction further enhances Baker Hughes' position as a top-tier global oilfield services company," said Denton said. "BJ Services broadens our portfolio by adding products, technologies and talented people that are key to helping our customers unlock value in their reservoirs, particularly in unconventional gas and deepwater fields. It 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."