Wide Benefits to Baker Merger Expected

Shareholders of Baker International Corp. and Hughes Tool Co. should be the biggest winners in the merger of the two companies, but the entire industry stands to benefit, says James Crandell, an analyst with the investment firm of Salomon Brothers Inc.

In a recent report, Crandell said Orange-based Baker and Houston-based Hughes should profit faster as one company than as two.

And the combination, by eliminating one competitor from the market, means that companies throughout the industry may see a return of stabilized prices and improved profit margins, he said.

For Baker Hughes Inc.--as the new company is to be called--the merger also will improve market shares held by all of its product lines, Crandell said.

In rock bits alone, Baker Hughes will hold an estimated 53% share of the total market. Even if Baker’s Reed Tool subsidiary were to be divested to satisfy anti-trust regulators, Baker Hughes would still hold a 36% share.

The increased market shares, coupled with cost savings made possible by the merger, may put Baker Hughes in the black by next December, Crandell said. Baker by itself probably would not have become profitable before mid-1988, while Hughes would not have been expected to make money until the end of that year.

Baker lost $273 million during the year ended Sept. 30, compared with net earnings of $87.7 million a year earlier. For the first nine months of 1986, Hughes lost $507.5 million, compared with net earnings of $3.5 million in 1985.

Crandell estimates that Baker Hughes will lose $115 million during 1987 but will earn $60 million in 1988. By 1993, when oil is expected to reach $26 a barrel, Baker Hughes should post net earnings of $415 million, he said.

E.H. Clark Jr., Baker’s chairman, said Friday that Crandell’s 1987 estimate sounds “about right.”

Baker closed Friday on the New York Stock Exchange at $11.50 a share, while Hughes, which also is traded on NYSE, closed at $8.125 a share. Both companies are still trading close to their 12-month lows, something Crandell attributed to “investors taking a ‘show-me’ attitude.”