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Baker Plans to Sell Divisions to Smooth Way for Hughes Merger

January 29, 1987|LESLIE BERKMAN | Times Staff Writer

Baker International executives said Wednesday that the company is preparing to sell all or portions of certain key operations to satisfy the Justice Department's concerns over the antitrust implications of its proposed $1.2-billion merger with Hughes Tool.

Baker President James D. Woods, who was elected Wednesday to succeed Earnest H. Clark Jr. as the Orange-based oil services firm's chief executive, said the required sale of one its drill bit divisions and its electric submersible pump manufacturing operations would raise up to $65 million.

At Baker's annual shareholders meeting Wednesday, Woods said "the phone was ringing off the hook" with inquiries from potential buyers following the Justice Department's divestiture ultimatum on Sunday.

Baker had originally scheduled a shareholder vote on the proposed merger for Wednesday. But that special meeting has been postponed until Feb. 25 because of the Justice Department's objection. The agency has threatened to file a lawsuit to stop the corporate marriage. Meanwhile, the companies and the Justice Department are continuing negotiations.

Also Wednesday, Baker reported a $34.2-million loss for its first fiscal quarter ended Dec. 31, compared to a net profit of $16.3 million in the first quarter of fiscal 1986. Revenues for the quarter were $297.7 million, down 32.7%.

Houston-based Hughes Tool, meanwhile, reported a loss of $475.9 million for the year ended Dec. 31, compared to net income of $4.1 million for 1985. The company's 1986 revenues were $806.1 million, down 36.1%. Fourth-quarter net income was $31.7 million, up from $560,000 for the final quarter of 1985. Quarterly sales fell to $215.65 million from $313.6 million.

In an interview, Woods refused Wednesday to identify those interested in buying the submersible pump and tricone bit divisions other than to say they are all involved in the oil and gas industry. (A tricone is a three-pronged drill bit commonly used in drilling oil wells.) He said the Justice Department wants the divisions to be sold to a company that does not already have a major rock bit or electrical submersible pump business.

"We just have to be convinced it (any sale) will solve the competitive problem," said Charles Rule, acting assistant attorney general. He said there are numerous options for disposing of the divisions, including setting up new companies. It is important, he said, that the divisions be sold to someone independent of Hughes and Baker and economically strong enough to survive. Without the divestiture, the combined companies would claim 53% of the worldwide bit market and at least a 30% share of the submersible pump market. After the sales, their combined market share would drop to about 26% for submersible pumps and 36% for rock bits. Woods said that in the currently "dismal" market for oil industry companies, Baker has been informed that the divisions would sell for approximately the same value as their combined annual revenues, which are $65 million.

In the negotiations, Woods said, Baker is arguing that it should be not be required to sell the international portions of the divisions that the Justice Department has targeted for divestiture.

Baker's domestic sales of electric submersible pumps and tricone drill bits, he said, represent about $38 million in annual revenue, including $8 million from electrical submersible pumps and $30 million from tricone drill bits.

Culminating 22 years as Baker's chief executive, Clark, 60, on Wednesday handed the reins of office to his protege. But he said he would continue to serve as chairman of Baker and later of Baker-Hughes, if the merger goes through.

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