Market Overview

General Electric, Baker Hughes To Create World-Leading Oilfield Tech Provider

General Electric, Baker Hughes To Create World-Leading Oilfield Tech Provider

The Wall Street Journal reported last week that General Electric Company (NYSE: GE) was in talks to merge its oil business with Baker Hughes Incorporated (NYSE: BHI).

The report resulted in shares of Baker Hughes gaining more than 8 percent on Friday and hitting a new 52-week high of $59.39, even though General Electric confirmed that it was in talks to partner with Baker Hughes, not merge together.

Merger Announced

Despite Friday's conflicting reports, General Electric confirmed on Monday that it has entered into an agreement in which its oil and gas business will combine with Baker Hughes to create a world-leading oilfield technology provider.

As part of the agreement, Baker Hughes shareholders will receive a one-time cash dividend of $17.50 per share and will also own 37.5 percent of the new entity.

The combined company will boast operations in more than 120 countries and become a leading equipment, technology and services provider in the oil and gas industry with a combined revenue base of $32 billion. Moreover, the combined entity would be better positioned for growth when the oil and gas industry rebounds.

The companies expect the business combination to generate total runrate synergies of $1.6 billion by 2020, which has a net present value of $14 billion. The transaction is also expected to be accretive to General Electric's earnings per share by $0.04 by 2018 and $0.08 per share by 2020.

"This transaction creates an industry leader, one that is ideally positioned to grow in any market. Oil & gas customers demand more productive solutions. This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes," said Jeff Immelt, chairman and CEO of GE. "As we built the GE Oil & Gas business, I have always been impressed by the respect our customers have for Baker Hughes. GE Oil & Gas is a key GE business, one that fully leverages the GE Store. 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 $0.04 to GE EPS in 2018, $0.08 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.

"In addition, Baker Hughes shareholders will receive a special one-time cash dividend of $17.50 per share and benefit from the upside of a stronger, larger business. 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."

Stocks Moving Pre-Market Monday

At last check in Monday's pre-market session, Baker Hughes was up 6.29 percent at $62.84, while GE was up 1.47 percent at $29.65.

Image Credit: By Gerd Fahrenhorst (Own work) [GFDL or CC BY 3.0], via Wikimedia Commons


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