BOSTON and HOUSTON – GE and Baker Hughes have entered into an agreement to combine GE’s oil and gas business, GE Oil & Gas, and Baker Hughes to create an equipment, technology, and services provider with $32 billion of combined revenue and operations in more than 120 countries.
The agreement has been unanimously approved by the boards of directors of both companies and the transaction is expected to close by mid-2017.
The new company will combine the digital solutions, manufacturing expertise and technology from the GE Store and Baker Hughes’ standing in the oilfield services sector.
The companies claim that with a combined revenue of more than$32 billion (based on 2015 figures), the product portfolio of GE Oil & Gas and Baker Hughes in drilling, completions, production, and midstream/downstream equipment and services will create the second-largest company in the oilfield equipment and services industry.
The transaction will be executed using a partnership structure. GE Oil & Gas and Baker Hughes will each contribute their operating assets to a newly formed partnership. GE will have a 62.5% interest in this partnership and existing Baker Hughes shareholders will have a 37.5% interest through a newly NYSE listed corporation.
Jeff Immelt, chairman and CEO of GE, said: “Oil and gas customers demand more productive solutions. This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes. As we go forward, this transaction accelerates our capability to extend the digital framework to the oil and gas industry. An oilfield service platform is essential to deliver digitally enabled offerings to our customers.
“We expect Predix to become an industry standard and synonymous with improved customer outcomes. GE investors will benefit through ownership of a stronger business with substantial synergies and an improved competitive position. The transaction is expected to add approximately $.04 to GE earnings per share in 2018, $.08 by 2020.”
Martin Craighead, chairman and CEO at Baker Hughes, said: “This compelling combination brings together best-in-class oilfield equipment manufacturing and services, and digital technology offerings for the benefit of all customers and stakeholders. The combination of our complementary assets will create a platform capable of seamless integration while we enhance our ability to deliver optimized and integrated solutions and increase touch points with our customers…
“With employees of Baker Hughes and GE Oil & Gas coming together, the new company will be an industry leader, well-positioned to compete in the oil and gas industry while pushing the boundaries of innovation for our customers.”
James West, senior managing director & partner, Evercore ISI’s Oil Services, Equipment & Drilling Fundamental Research Group, released an update on the transaction, noting: “[W]e suspect this is likely an avenue for GE to promote the widespread adoption of its industrial internet platform Predix, a focal point of the company’s long term strategy… a GE-BHI partnership could be the key to accessing a plethora of data across the well life cycle for GE as its service offering is light relative to the two OFS companies.
“As perceived value within the oil patch shifts from hard assets to the cloud, these type of combinations will likely become increasingly differentiating factors (if not necessary) to compete at the upper echelon of the next upcycle.”
As murmurings of the deal began to appear a few days ago, West said in a previous note dated Oct. 28 that, beyond the scope of big data, Evercore foresaw “potential revenue synergies” also arising from subsea partnership, noting GE and McDermott’s joint offshore consultancy io oil and gas and Aker Solutions’ and Baker Hughes’ Subsea Production Alliance.