Baker Hughes Inc., Houston, (NYSE: BHI) plans to merge with BJ Services Co., Houston, (NYSE: BJS) in a deal valued at $5.5 billion. Baker Hughes will issue 0.40035 share and $2.69 in cash per BJ Service share. This represents a premium to BJ Services stockholders of 16.3% above the closing price of BJ Services stock on August 28. Pro forma, BJ shareholders will own about 27.5% of Baker’s outstanding shares.

BJ Services provides pressure-pumping and oilfield services in the U.S. and internationally.

Baker Hughes expects to realize annual cost savings of approximately $75 million in 2010 and $150 million in 2011 as it eliminates redundant costs, consolidates facilities and further rationalizes field costs. It expects the combination to be accretive to earnings per share in 2011.

The Baker Hughes board will be expanded to include two BJ Services board members.

Goldman, Sachs & Co. is financial advisor to Baker Hughes. Akin Gump Strauss Hauer & Feld LLP, Fulbright & Jaworski LLP, Howrey LLP and Morris, Nichols, Arsht & Tunnell LLP are its legal advisors.

Greenhill & Co. is financial advisor to BJ Services and issued a fairness opinion, as did BofA Merrill Lynch Securities. Skadden, Arps, Slate, Meagher & Flom LLP and Andrews Kurth LLP are its legal advisors. The deal is expected to close by year-end.