* Baker Hughes to pay 16 pct premium
* Baker Hughes sees savings of $75 mln in 2010
* Baker Hughes sees deal adding to 2011 EPS
* Baker Hughes shares down 3.6 pct; BJ Services up 11 pct (Recasts, adds analyst comment)

NEW YORK- Oilfield services company Baker Hughes Inc (BHI.N) said on Monday that it would buy peer BJ Services Co (BJS.N) for $5.5 billion in a move to take on sector giants Halliburton Co (HAL.N) and Schlumberger Ltd (SLB.N).

The stock-and-cash deal values BJ at a 16 percent premium over its closing price on Friday, said the companies, whose boards have approved the transaction.

Oilfield service companies have suffered over the past year as oil and gas producers sharply cut spending on new projects. The proposed deal comes after natural gas prices slid to a seven-year low last week.

The deal will make Baker Hughes a major player in the key North American pressure pumping, in which gas or liquids are injected into wells to increase production.

Baker Hughes currently ranks as the fourth-largest oilfield services company by market value.

This has long been eyed by Baker to establish a more competitive position against the other two players, said Capital One Southcoast analyst Pierre Connor. It's not a huge premium, but I think the market has been holding up BJ's price in anticipation of something like this.

BJ Services stockholders will receive 0.40035 shares of Baker Hughes and $2.69 in cash for each of their shares, which totals $17.94 a share based on Friday's closing price.

The company's stock was up 11 percent at $17.20 in premarket trading, while Baker Hughes was down 3.6 percent at $36.70.

Baker Hughes and BJ Services' combined market capitalization will be about $16.3 billion, putting it ahead of National Oilwell Varco Inc (NOV.N) in the oil services field, but well behind Schlumberger, worth $68.8 billion, and Halliburton, at $21.8 billion.


Industry analysts believe natural gas prices will probably stay weak into 2010 when cuts to drilling are expected to begin to trim production and winter demand cuts into the high level of the fuel in storage.

Baker, which will pay about 10 times BJ Services' 2010 earning before interest, taxes, depreciation and amortization, expects the deal to add to profits by 2011.

The deal will better position us to drive international growth and to compete for the growing large integrated projects by incorporating pressure pumping into our product offering, said Baker Hughes Chief Executive Officer Chad Deaton.

Pressure pumping accounts for about 75 percent of BJ Services' revenues. The acquisition will lift pressure pumping at Baker Hughes to about 20 percent of revenues from about 1 percent.

Baker Hughes expects annual cost savings of about $75 million in 2010 and $150 million in 2011. (Reporting by Matt Daily and Christopher Kaufman in New York and Adveith Nair in Bangalore; Editing by Derek Caney and Lisa Von Ahn)