By Daniel Gilbert
In its effort to force a merger on Baker Hughes Inc. by
replacing its board, Halliburton Co. will be confronting a
distinguished but graying group composed mostly of energy-industry
executives.
Halliburton notified Baker Hughes that it would nominate a slate
of directors to run against the existing board after talks between
the two companies reached an impasse, Baker Hughes said late
Friday. The company says its annual meeting is set for April.
The brewing battle between two of the world's three largest oil
field contractors is rare for the energy sector, and Halliburton's
bid for control isn't likely to be a cakewalk.
Halliburton declined to comment; Baker Hughes didn't respond to
a request for comment, and its directors couldn't immediately be
reached or declined to comment.
Houston-based Baker Hughes, which has a stock-market value of
about $26 billion, is governed by directors who include the
executive chairman of Devon Energy Corp., and the former heads of
Marathon Oil Corp. and Sunoco Inc., among others. Combined, the
company's 11 board members won re-election in April with an average
of 94% support of votes cast by shareholders.
In June, Baker Hughes expanded its board to 13 and elected two
new members. Excluding the two newest directors, the average board
member was 66.1 years old in April, slightly older than the boards
of other big companies. The average director of S&P 1500
companies in 2013 was 63.2 years old, according to proxy adviser
Institutional Shareholder Services.
The Baker Hughes board may recruit new candidates for its board
by April; three current members, including the lead independent
director, will have reached the company's mandatory retirement age
of 72 by next year's election. The board, excluding the affected
directors, can waive the retirement clause.
It isn't clear that turnover on Baker Hughes' board would give
Halliburton an edge in a proxy battle. Baker Hughes isn't in
financial distress. The company posted record revenue of $22.4
billion last year, generating $1.5 billion after capital
spending.
But Baker Hughes, by its own assessment, has lagged behind
Halliburton and other rivals in several key performance measures.
Its total shareholder return, a measure of stock performance and
dividends, was zero over the last three years, according to its
March proxy statement. It ranked itself 4th among peers in
increasing revenue, profit margins and return on capital employed
over the last three years.
Baker Hughes' profits from pumping used in hydraulic fracturing,
a mainstay of its business, fell short of its expectations last
year. And the company acknowledged earlier this year it has
struggled to retain employees.
The issue of retaining talent has surfaced in the fraught
negotiations with Halliburton. The company on Friday said
Halliburton had refused to agree not to poach its employees before
they reached a deal.
Earlier this year, Baker Hughes proposed two measures to issue
30 million shares to compensate executives and other employees, in
part to motivate and retain them. A compensation consultant hired
by the company estimated it would dilute existing shareholders by
4.7%. Shareholders overwhelmingly approved the measures.
Dan Molinski contributed to this article.
Write to Daniel Gilbert at daniel.gilbert@wsj.com
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