GE’s oil, gas division, Baker Hughes to form $32-billion company

General Electric Co. has agreed to merge its oil and gas business with Baker Hughes Inc., creating an equipment, technology, and services provider with $32 billion of combined revenue and operations in more than 120 countries.

The “new” Baker Hughes, to have dual headquarters in Houston and London, will be 62.5% owned by GE and 37.5% owned by Baker Hughes shareholders, who will receive a special one-time cash dividend of $17.50/share. The deal is expected to close in mid-2017.

“From GE’s fullstream oil and gas manufacturing and technology solutions spanning across subsea and drilling, rotating equipment, imaging, and sensing to the Baker Hughes portfolio in drilling and evaluation, and completion and production, the combined company will be moving beyond oil field services and into oil and gas productivity solutions,” the firms jointly said in a press release announcing the deal.

As a result of the deal, GE and Baker Hughes expect to generate total “runrate synergies” of $1.6 billion by 2020, which has a net present value of $14 billion.

Jeff Immelt, chairman and chief executive officer of GE, will serve as chairman of the new company, and Lorenzo Simonelli, president and chief executive officer of GE Oil & Gas, will serve as president and chief executive officer. Martin Craighead, Baker Hughes chairman and chief executive officer, will serve as vice-chairman. The remainder of the executive leadership team will be a combination of existing leaders from both GE and Baker Hughes.

"GE's history of manufacturing excellence and marketing capabilities along with Baker's technology and expertise should be a big plus for the new company," commented Jonathan Garrett, a principal analyst at research and consulting firm Wood Mackenzie Ltd. “The types of products the new company specializes in [such as artificial lift, wellheads, pumps, and compressors] target a segment that up until recently didn't get much attention,” he said.

“While some might perceive this new company as a major threat to Schlumberger [Ltd.] and Halliburton [Co.], the new entity seems to be going after a much different segment within the [oil field services] space,” Garrett continued. “While Halliburton and Schlumberger have really spent a lot of energy and capital beefing up their frac options, this new company appears to really focus on the opex portion of operator spend.”

The oil field services sector has taken the brunt of the industry downturn that now dates back more than 2 years, resulting in numerous mass layoffs, bankruptcies, and mergers.

Baker Hughes initially intended to merge with Halliburton in a $28-billion deal announced in November 2014, but the firms called it off last May amid regulatory scrutiny and “general industry conditions that severely damaged deal economics,” Halliburton Chairman and Chief Executive Officer Dave Lesar said at the time (OGJ Online, May 2, 2016). After that merger was announced, GE entered discussions with Baker Hughes to buy assets BHI intended to divest in an effort to get regulatory approval for the deal.

Other recent oil field services combinations include Schlumberger and Cameron International Corp. in a $14.8-billion deal (OGJ Online, Aug. 26, 2015); and Technip SA and FMC Technologies Inc. in a $13-billion deal (OGJ Online, May 19, 2016). Technip and FMC will each hold shareholders meetings to approve their deal on Dec. 5. It’s expected to close in early 2017.

Contact Matt Zborowski at matthewz@ogjonline.com.

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