GE and Baker Hughes to create No. 2 oilfield services provider

Baker Hughes is the smallest of the big three oilfield services companies.

NEW YORK: General Electric Co. said it would merge its oil and gas business with Baker Hughes Inc. , creating the world’s No. 2 oilfield services provider, amid signs that firmer oil prices are encouraging a recovery in the industry.

GE will own 62.5 percent of the new publicly traded company, which will have combined revenue of $32 billion, while Baker Hughes shareholders will own 37.5 percent.
The deal comes at a time when North American oil and gas producers are putting rigs back to work after a near-freeze in activity caused by a slump in oil prices that began mid-2014.
Global oil prices have risen by a third this year to trade near $50 a barrel.
The deal will vault the combined company ahead of Halliburton Co. in terms of revenue. Baker Hughes had planned to merge with Halliburton in a deal valued at $34.6 billion when it was announced in November 2014, but that deal fell through in May due to regulatory concerns.
The tie-up will also put GE and Baker Hughes in a stronger position to challenge market leader Schlumberger, which had revenue of about $35 billion in 2015. GE said last week it believed the oil market had bottomed, but that demand for the equipment it makes would take longer to recover, probably until after the first half of next year.
GE has been refocusing on its industrial roots after the company’s financial business ran into problems during the 2008 financial crisis.
The oil and gas business, which makes blowout preventers, pumps and compressors used in exploration and production, accounted for 14 percent of GE’s total revenue in 2015.
Baker Hughes supplies a variety of oilfield services, products, technology and systems.

’Ideally positioned’
From a regulatory perspective, there appears to be little overlap between GE’s and Baker Hughes’s businesses, compared with the proposed Halliburton-Baker Hughes combination.
James West, a partner at Evercore ISI, said the main area of overlap was in artificial lift — a process used to increase pressure within the oil reservoir and push up the oil.
West noted that both companies also compete in wireline and directional drilling, although GE’s market share was a fraction of that of Baker Hughes.
“This transaction creates an industry leader, one that is ideally positioned to grow in any market,” GE CEO Jeff Immelt said in a statement.
“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.”
Lorenzo Simonelli, chief executive and president of GE Oil & Gas, will be CEO of the new company. Immelt will be chairman and Baker Hughes CEO Martin Craighead will be vice chairman.
Shareholders of Baker Hughes, which had a market value of about $26 billion as of Friday, will get a special one-time cash dividend from GE of $17.50 per share — or a total of $7.4 billion — after the deal closes.
The companies said on Monday the deal was expected to add 4 cents to GE’s earnings per share by 2018 and 8 cents by 2020.
The deal will be executed using a partnership structure, under which GE Oil & Gas and Baker Hughes will each contribute their operating assets.
The new company, to be listed on the New York Stock Exchange, will have dual headquarters in Houston and London.
GE and Baker Hughes had said on Thursday they were in talks over potential partnerships. The Wall Street Journal first reported that the companies were in discussions.
Baker Hughes shares were up 7.8 percent at $63.75 in premarket trading on Monday. The stock had closed at $54.55 on Thursday ahead of the Journal report.
Centerview Partners and Morgan Stanley are advising GE. Shearman & Sterling is its legal adviser. Goldman Sachs & Co. is Baker Hughes’s financial adviser, with Davis Polk acting as legal adviser.