American multinational conglomerate corporation General Electric (GE) has recently agreed to combine its oil and gas business unit, GE Oil & Gas, with one of the world’s largest oilfield services companies, Baker Hughes, to create a world-leading oilfield technology provider with a unique mix of service and equipment capabilities.
The deal will create a “new” Baker Hughes that will be a leading equipment, technology and services provider in the oil and gas industry with US$32 billion of combined revenue and operations in more than 120 countries.
“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 Chief Executive Officer of GE.
At the closing of the transaction, Baker Hughes shareholders will receive a special one-time cash dividend of US$17.50 per share and 37.5% of the new company. GE will own 62.5% of the company. The transaction is expected to close in mid-2017.
To be dubbed as “Baker Hughes, a GE company”, the new company will combine the digital solutions, manufacturing expertise and technology from the GE Store and the outstanding track record of success Baker Hughes has in the oilfield services sector.
The combination will also produce substantial synergies through combined efficiency and growth. The companies expect to generate total run rate synergies of US$1.6 billion by 2020, which has a net present value of US$14 billion.While this is primarily driven by cost out, GE and Baker Hughes both believe that the new company is positioned for growth as the industry rebounds.
The merger is also positioned to create value for GE shareholders. The transaction is expected to be accretive to GE’s earnings per share by US$.04 by 2018 and US$.08 by 2020. This is another step in creating the premium digital industrial company.
“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,” Immelt said.
The new company will have dual headquarters in Houston, Texas in the US and in London, UK. Upon closing of the transaction, the board will consist of nine directors: five of whom, including Chairman Jeff Immelt will be appointed by GE and four, including Vice Chairman Martin Craighead will be appointed by Baker Hughes.