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Magnetar Disposes of Stake in Baker Hughes

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Apr. 14 2015, Updated 6:09 p.m. ET

Magnetar and Baker Hughes

In 4Q14, Magnetar Capital ended its position in Baker Hughes (BHI) by selling its remaining 1.3 million shares in the company. The position had accounted for ~1.5% of the fund’s third-quarter portfolio.

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About Baker Hughes

Baker Hughes is a leading supplier of oilfield services, products, technology, and systems to the worldwide oil and natural gas industry. The company also provides industrial products and services to downstream chemical and midstream energy companies. The company operates in more than 80 countries and has five segments:

  1. North America
  2. Middle East or Asia-Pacific
  3. Latin America
  4. Europe, Africa, and Russia Caspian
  5. Industrial Services

In 2014, North America contributed almost 50% of the company’s total revenue.

Halliburton to acquire Baker Hughes

In November 2014, Halliburton (HAL), one of the largest oilfield service providers, agreed to acquire Baker Hughes for $34.6 billion. Baker Hughes shareholders will get 1.12 Halliburton shares plus $19 in cash for each Baker Hughes share.

Once the deal is complete, Halliburton expects cost synergies of $2 billion per year. If the deal gets canceled, Halliburton agrees it would pay $3.5 billion to Baker Hughes.

Baker Hughes and Halliburton held a shareholder meeting on March 27 in connection with the pending acquisition.

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Baker Hughes will cut jobs

To deal with the current oil downturn, Baker Hughes and its peers are trying to reduce operating costs. In its 4Q14 earnings release, Baker Hughes announced that it would cut 7,000 jobs. This job cut represents 11% of its current 62,000 global workforce. The job cuts are expected in 1Q15.

Recently, Halliburton also announced 5,000 to 6,500 job cuts.

Schlumberger (SLB) plans to cut 9,000 jobs, or 8% of its total workforce, due to slower drilling activity. Schlumberger, Halliburton, National Oilwell Varco (NOV), and Baker Hughes are part of the VanEck Vectors Oil Services ETF (OIH). These companies account for 45.53% of OIH. Baker Hughes also accounts for 7.41% of the iShares U.S. Oil Equipment & Services ETF (IEZ).

Strong revenue, earnings, and free cash flow in 4Q14

Baker Hughes reported revenue of $6.6 billion this quarter—up 6% sequentially. Its earnings were driven by strong demand and increased activity in some regions including Canada, West Texas, the northern Persian Gulf, North Asia, and Australasia.

GAAP (generally accepted accounting principles) net income was $663 million or $1.52 per diluted share. This was up 77%. Baker Hughes increased profitability with improved pricing and use in its US pressure pumping business. The increased contribution from the Gulf of Mexico and Canadian markets also boosted the company’s profitability. In 4Q14, free cash flow was $838 million.

In full-year 2014, revenue was up 10% to $24.6 billion. GAAP net income was $1.7 billion or $3.92 per diluted share, up 57%. In the full year, free cash flow was $1.6 billion. And, during the year, the company reduced its capital expenditure by 14% to $1.8 billion.

Returns to shareholders

In 2014, Baker Hughes repurchased $600 million in shares, 71% more than in 2013. The company declared a quarterly dividend of $0.17 per share.

To learn more about Baker Hughes, read Assessing ValueAct Capital’s activist position in Baker Hughes.

In the next article of this series, we’ll look at Magnetar’s position change in Denbury Resources (DNR).

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