Here are some of the notes analysts put out this morning about Baker Hughes’ $5.5 billion takevoer of BJ Services:
From Simmons & Co.:
• A logical strategic combo and somewhat expected.
• BHI’s spin-off of BJS many years ago has now been reconsolidated and, in doing so, fills a compelling strategic need for BHI as the NOCs are calling for increasingly more and not less integration.
• BHI’s best in class balance sheet hardly stressed – net debt/cap goes from 6% to 15%.
• Price isn’t offensive as BHI only paying a 16% premium/
• Key will be execution – integration (from a cultural standpoint should be easy as both are NAM centric although BHI has been “internationalizing” since Deaton arrived), selling the new combo integration and displacing SLB/HAL/WFT, and realizing the cost savings – all hugely important. And the proof will be in the results.
• Implications for NAM service likely positive – not sure if this triggers a much needed consolidation wave but this deal will galvanize some to action in some shape or form. Don’t think this propels SLB/HAL/WFT to anything re consolidation, however.
• BHI gains the strong pressure pumping franchise of BJS that it had lacked. We believe strategically BHI will help BJS capture international pressure pumping, and a diversified suite of services is also becoming more important as a competitive requirement with majors and larger independents.
From Tudor Pickering:
• Deal from BHI perspective
($38.09 – H) – Not enough here to want to upgrade/Buy stock..but BHI doing right thing at generally right time. Expensive? Not really when taking view to 2011+ (~10x P/E). Clear operational fit. Makes BHI more competitive as pressure pumping is currently gaping hole for BHI when bidding International IPM work and bundled US services. Puts more on plate while in middle of transitioning to geomarket organization – so execution risk higher than usual.
• Deal from BJS perspective
($15.43 – H) – Not gangbusters, but fair. Strategically, taking BHI money and running is good option for BJS. Was going to be hard road for BJS given too much US capacity will keep 2010 stand-alone earnings depressed and likely lower cycle-to-cycle. With 2010 gas rebound, might have been able to play chicken for $20+/share deal, but plenty of upside opportunity in BHI stock. Thus, not giving away farm by doing 85% stock deal at $18/share headline price.
• BHI/BJS deal implications for other stocks
(OSX $178) –Lots of BJS owners playing stock for US gas leverage…BHI doesn’t give them that. They’ll be BJS sellers and rotating to other gassy beta names..we’d push towards HAL. If willing to go smaller/riskier – we’d say CRR, CPX, SWSI. Another rotation beneficiary will be land drillers. Not our favorites, but that won’t matter in short term – NBR, PTEN, HP.