Baker shares fall on BJ bid; Disney buy faces short-term concerns; Huntsman moves in on Tronox

By Cristal Cody

Tupelo, Miss., Aug. 31 - Investors sent shares of Baker Hughes Inc. down nearly 10.00% and analysts expressed distrust after the company said Monday it will acquire BJ Services Co. for $5.5 billion in stock and cash.

Also on Monday, Walt Disney Co. said that it will acquire Marvel Entertainment, Inc. for $4 billion in cash and stock - a deal at least one analyst sees as potentially good in the long term but a problem for the short term.

In other situations, Huntsman Corp.'s $415 million bid for some assets of bankrupt Tronox Inc. is expected to further consolidate the chemicals manufacturing industry.

Meanwhile, stocks closed down Monday.

The Dow Jones Industrial Average lost 47.92 points, or 0.50%, to end at 9,496.28.

The Standard & Poor's 500 index fell 8.31 points, or 0.81%, to 1,020.62, and the Nasdaq Composite index shed 19.71 points, or 0.97%, to close at 2,009.06.

Baker's interest strikes at bottom

Baker Hughes' stock lost $3.64, or 9.56%, to close Monday at $34.56.

The Houston-based drilling and production products company said it will buy BJ Services to expand its international business and fill a product void with BJ's oilfield services.

BJ's shareholders will receive $2.69 in cash and 0.40035 of a share of Baker Hughes for each BJ share.

The deal values Houston-based BJ, which provides pressure pumping and pipeline services to the petroleum industry, at a 16.30% premium over BJ's stock closing price of $15.43 on Friday, the companies said.

Shares of BJ added 63 cents, or 4.08%, to close Monday at $16.06. The stock has traded from $8.34 to $28.15 over the past year.

In a joint conference call with analysts on Monday, several analysts repeatedly asked the companies' executives why they are pursuing this deal now, when gas prices are low.

Bill Stewart, BJ's chairman, president and chief executive officer, said the company has consistently reported that it has a massive natural gas surplus.

"It just so happens that now is when Baker Hughes decided they were interested. Demand is down significantly," he said on the call. "We don't expect it to be rebounding real soon unless we get consolidation."

Stewart said BJ needs broader products and services and a better international position.

Chad C. Deaton, Baker Hughes' chairman, president and CEO, told analysts that pressure pumping will play a key role over the long term in North America.

"This is a very strong franchise," he said. "We believe right now is [the time] mainly because we think we are at the bottom. We felt now makes sense."

The merger must be approved by shareholders of both companies.

Baker Hughes spokesman Gary Flaharty told Prospect News that the deal will require Hart-Scott-Rodino Antitrust Improvements Act approval and some international antitrust filings, though the exact countries were not immediately available.

"That's something we'll be focusing on," Flaharty said.

The companies said the transaction could close as soon as the end of the year.

The deal includes a $175 million breakup fee, executives said on the call.

Comics to the rescue

Burbank, Calif.-based Disney will acquire New York-based Marvel and more than 5,000 Marvel characters such as Spider-Man, the X-Men and Captain America.

Under the terms announced Monday, Disney will pay Marvel shareholders $30.00 a share in cash and 0.745 of a share of Disney for each Marvel share.

The proposal values Marvel at $50.00 a share, a 29.00% premium to Marvel's closing stock price of $38.65 on Friday.

Joseph Bonner, an analyst with Argus Research Co., told Prospect News on Monday that investors might have some concerns about the transaction.

"It seems like it may be a good long-term deal, but short term there's going to be some EPS dilution," he said. "Initially, it's going to cost them some money."

Bonner said Disney's healthy balance sheet can handle the purchase.

"The concerns are more around how to mesh cultures," Bonner said. "One's East Coast, one's West Coast. Disney apparently will run it as a separate entity, so there are a lot of questions on how that's going to work."

Investors may be reminded of Disney's 1993 acquisition of distributor Miramax Film Corp.

"That was run as a separate entity, and it didn't work out so well," Bonner said.

The agreement requires the approval of Marvel shareholders, who are expected to take the offer.

"They're getting a pretty good deal. If I were a Marvel shareholder, I would take the money and run," Bonner said.

Marvel shares closed up $9.72, or 25.15%, at $48.37 on Monday.

Ike Perlmutter, Marvel's CEO, said in a statement on Monday that "Disney is the perfect home for Marvel's fantastic library of characters."

The acquisition must receive clearance under the Hart-Scott-Rodino Antitrust Improvements Act and non-U.S. merger control regulations.

Disney representatives did not return a message for additional clarification on the foreign regulatory approvals needed for the deal.

Disney's stock fell 80 cents, or 2.98%, to close at $26.04.

Huntsman eyes consolidation

Huntsman said that it signed a stalking horse agreement that makes its bid the first offer in a bankruptcy auction for Oklahoma City-based Tronox, which filed for Chapter 11 bankruptcy in January 2008.

Huntsman has bid on Tronox's titanium dioxide facilities in the Netherlands and the United States, excluding its Savannah, Ga., site; a 50.00% joint venture interest in an Australian titanium dioxide facility; and Tronox's U.S. electrolytic production facilities.

Salt Lake City-based Huntsman produces and markets chemicals for a range of industries, including automotive, aviation, footwear, paints and agriculture.

If the bid is approved, the industry will become even more concentrated, Frank Mitsch, an analyst with BB&T Capital Markets, said Monday in a research note released to Prospect News.

"Twenty years ago, the top seven suppliers accounted for 74.00% of global industry capacity, but if this deal goes through as planned, we estimate that the top four suppliers will account for 70.00%," he said.

Huntsman said it plans to finance half of the $415 million purchase with debt. The agreement will be submitted for approval to the U.S. Bankruptcy Court for the Southern District of New York.

"This acquisition, even before expected synergies, would be immediately accretive to our operating earnings and cash flow, as well as reduce our debt leverage," Peter Huntsman, Huntsman's president and CEO, said in a Monday statement.

"By combining our existing pigments division with these assets, we also can realize substantial efficiencies that will benefit the customers, vendors, employees and other stakeholders of the combined business," he said.

Huntsman shares rose 24 cents, or 2.87%, to close at $8.59 on Monday.

Tronox's stock, traded over the counter, closed up 1 cent, or 3.45%, at 15 cents.

Mentioned in this article:

Baker Hughes Inc. NYSE: BHI

BJ Services Co. NYSE: BJS

Huntsman Corp. NYSE: HUN

Marvel Entertainment, Inc. NYSE: MVL

Tronox Inc. Pink Sheets: TRXAQ

Walt Disney Co. NYSE: DIS

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