Baker Hughes Presses Cost-Cutting Drive : Newly Merged Firm Reports 850 Layoffs, Voluntary Resignations

Two months after the $1.2-billion merger of Baker International and Hughes Tool Co., the president of the combined oil services company said Monday that he has put into gear a comprehensive cost-cutting strategy, starting with the layoffs and voluntary resignations of 850 employees.

James Woods, president and chief executive of Baker Hughes, said he expects to make still deeper cuts in the company’s 21,000-person workforce in gradual increments throughout the year. He declined to say how many total jobs he expects to slash but added that the first wave of 850 will be eliminated by June 30. The estimated annual cost savings to Baker Hughes from the reduced payroll will be about $27 million.

The current cutbacks, he said, affect every division of the company. About half of the staff reductions, he said, have been accomplished voluntarily by sweetening severance benefits.

Woods said Baker Hughes’ management will also soon announce which facilities it intends to close in consolidating the two companies’ operations. One of the first facilities to close was Baker’s Orange headquarters. The combined company is now based in Houston, though Chairman E.H. Clark continues to maintain an Orange County office.

“We are accomplishing our objectives on a timetable as planned,” said Woods, who noted that he has promised publicly to take measures within 12 months to reduce Baker Hughes’ annual costs by $70 million.

Woods added that he also is determined to bring Baker Hughes into the black. The company posted a $163.9-million loss in the latest fiscal quarter, largely because of merger costs.

As another cost-saving tactic taken since the merger, Woods said Baker Hughes has refinanced $100-million worth of Hughes debentures at a lower interest rate, resulting in an annual savings of about $7 million.

Besides cutting operational costs, Baker Hughes has strengthened its investment in drilling-fluids manufacturing by making two strategic acquisitions.

Woods said Baker Hughes on May 8 bought the 50% interest in Hughes Drilling Fluids Inc. that it did not already own. He said Baker Hughes arranged to acquire the remaining ownership interest from W.R. Grace for $16 million in cash, plus about $10-million worth of future purchasing credits.

In addition, Woods said, Baker Hughes paid $12 million in cash to acquire C.K.S. Drilling Fluids, a company with $40 million in annual revenues that is based in Pau, France.

Woods said Baker Hughes has paid for the recent acquisitions with some of the $100 million in cash it had on hand after the merger. In addition, he said that three weeks ago, Baker Hughes sold a $100-million convertible preferred stock offering for the merged company and attracted more buyers than it could satisfy.