Baker Hughes is selling a majority of its hydraulic fracturing and cementing business to private equity partners to create the new BJ Services company in the Houston area.
The new company will operate as a standalone joint venture — it won’t be publicly traded — and restore the BJ Services name as its own company. Baker Hughes bought BJ Services Co., of Houston, for $5.5 billion in 2009, to expand into the fracking business, and the deal has served as a financial drag for Baker Hughes ever since.
The deal comes less than a month after it was announced that Baker Hughes is combining with a unit of General Electric in a $32 billion merger that would create an expanded Baker Hughes. GE, based in Boston, would own 62.5 percent of the combined company, which will continue to trade under Baker Hughes’ BHI stock ticker.
The BJ Services pressure pumping deal brings Baker Hughes into partnerships with Houston-based CSL Capital Management private equity firm and Goldman Sach’s merchant banking fund, called West Street Energy Partners. Baker Hughes will keep a 46.7 percent ownership stake in BJ Services.
Baker Hughes’ pressure pumping business will combine with CSL’s Allied Oil & Gas Services business, which was acquired earlier this year. New Allied Chief Executive Warren Zemlak, a veteran of Schlumberger, will lead the new BJ Services, which will be headquartered in Tomball.
Baker Hughes Chairman and CEO Martin Craighead said the deal creates a “pure-play pressure pumping competitor” that can better compete with industry leaders Schlumberger and Halliburton.
CSL and Goldman Sachs will together contribute $325 million in cash to the new company. Baker Hughes will receive $150 million of the total, while the remaining $175 million will position BJ Services for growth.
“We look forward to renewing the BJ Services legacy and utilizing our experience building highly reliable teams and efficient operations to create a North American pressure pumping leader,” Zemlak said in the announcement.
Ever since the failed acquisition of Baker Hughes by Halliburton earlier this year, Craighead has said the plan was to sell a stake in the pressure pumping business as Baker Hughes focuses more on technology and product sales.
The new BJ Services deal is an “expected outcome” for Baker Hughes to “wash its hands of a very unfortunate legacy,” said Bill Herbert, a senior energy analyst Piper Jaffray & Co., an investment research firm.Baker Hughes is essentially getting a $150 million return on the majority of a business is paid more than $5 billion to acquire.
“Baker didn’t have an especially strong negotiating hand because it had destroyed so much value,” Herbert said.
However, the new BJ Services is better positioned with Zemlak’s leadership and CSL’s strong track record in oilfield services, Herbert said, noting that the business still could have strong long-term value.