HOUSTON -- Baker Hughes Inc., an oil field-services company, agreed to buy Western Atlas Inc. for $6.2 billion in stock and assumed debt, a bid to acquire Western's oil-exploration technology and pre-empt a potential offer from rival Halliburton Co.
Based on Friday's closing prices, Baker Hughes is offering $98.70 a share in its stock for each Western Atlas share, or $5.5 billion. The offer, a 21 percent premium to Western's closing price Friday, was approved by Western's board.
The buyer would assume about $700 million in debt.
Baker Hughes is trying to head off Halliburton, which analysts expect will make a counteroffer or buy a Western rival. Baker and Halliburton, competitors of industry leader Schlumberger Ltd., need Western's capabilities of finding oil by mapping geological formations with sound waves and using wires to manipulate tools and gauges in the thin confines of oil and natural-gas wells.
"Halliburton won't stand by and let Baker Hughes buy Western," said James Wicklund, an analyst for Dain Rauscher Wessels, who has a "hold" rating on the three companies' shares.
Guy Marcus, a spokesman for Halliburton, declined to comment on whether the Dallas-based company would make a bid. A struggle for control of Western could push its shares as high as $115, Wicklund estimated.
Shares of Western Atlas rose $11.50 to close at $92.875 yesterday. Baker fell $2.3125 to $38.8125, and Halliburton slid $1.5625 to $52.50.
Halliburton said in February that it would buy Dresser Industries Inc. for $8.9 billion in stock and assumed debt, making it the largest oil-services company in the world based on annual revenue. Schlumberger is now the largest, with annual revenue of more than $10.6 billion.
But even with the Dresser purchase, Halliburton won't have the services needed to compete with Schlumberger, analysts said.
"There's a seismic hole in their service offerings, and if Western Atlas is gone, they might look elsewhere," said Norman Rosenberg, an analyst with the S&P Equity Group, who has a "hold" rating on Baker, Western and Halliburton.
Baker sells customers the drill bits, oil field chemicals and well pumps they need after choosing a drilling site. Halliburton primarily builds oil rigs and plants. In a push to cut costs, the oil industry is expected to invest more in technology and less in the heavy equipment that has been the mainstay of Baker and Halliburton.
Western is a leader in mapping geologic formations with sound waves, a technology that has greatly increased the chances of finding oil and decreased the number of expensive "dry holes," or wells that fail to produce oil.
Companies that can do everything from providing the seismic data used to map potential exploration sites to drilling the well and pumping out the oil and natural gas are expected to win more contracts than smaller oil-services providers in the future. Western would allow either Halliburton or Baker to offer complete services packages.
Under the agreement with Western, Baker Hughes Chairman Max Lukens would run the new company, which would have $6.5 billion in annual revenue and 36,000 employees. The companies are based in Houston, where the headquarters would remain.
Western Atlas was a spinoff from Litton Industries Inc. four years ago.
Pub Date: 5/12/98