GE and Baker Hughes on Monday announced that the companies have entered into an agreement to combine GE’s oil and gas business (GE Oil & Gas) and Baker Hughes to create the second largest oilfield technology provider.
The agreement comes days after GE denied the allegations about merging its O&G business with the oilfield services provider Baker Hughes saying the pair was only ‘in discussions about potential partnership’ and that none of these options include an ‘outright purchase’.
The “New” Baker Hughes will be an equipment, technology and services provider in the oil and gas industry with $32 billion of combined revenue and operations in more than 120 countries. By drawing from GE technology expertise and Baker Hughes capabilities in oilfield services, the new company will provide physical and digital technology solutions for customer productivity, the pair said in a joint press release on Monday.
Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, at the closing of the transaction Baker Hughes shareholders will receive a special one-time cash dividend of $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.
“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.
“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 $.04 to GE EPS in 2018, $.08 by 2020.”
Martin Craighead, Chairman and Chief Executive Officer 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.”
“This transformative transaction will create a powerful force in the oil and gas market…”
Lorenzo Simonelli, who is currently president and CEO of GE Oil & Gas said, “This transformative transaction will create a powerful force in the oil and gas market as we continue to drive long-term value for our customers and shareholders. This transaction is also exciting for employees of both companies. GE Oil & Gas and Baker Hughes are an exceptional cultural fit, sharing a commitment to exceeding customer expectations. Both companies’ employees will benefit significantly from being part of a larger, stronger company that is positioned for long-term growth. We look forward to combining the digital solutions and technology from the GE Store with the domain expertise of Baker Hughes and its culture of innovation in the oilfield services sector.”
According to the duo, the strategic and financial benefits of the transaction are:
– Complementary assets and integrated offerings will provide differentiated services for combined company’s customers. The company will combine the digital solutions, manufacturing expertise and technology from the GE Store and the track record of Baker Hughes in the oilfield services sector. With combined revenue of over $32 billion 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 player in the oilfield equipment and services industry. As one company, they will have operations in more than 120 countries. From GE’s fullstream oil and gas manufacturing and technology solutions spanning across subsea & drilling, rotating equipment, imaging and sensing to the Baker Hughes portfolio in Drilling & Evaluation and Completion & Production, the combined company will be moving beyond oilfield services and into oil and gas productivity solutions.
– The combination produces substantial synergies through combined efficiency and growth. The companies expect to generate total runrate synergies of $1.6 billion by 2020, which has a net present value of $14 billion. While this is primarily driven by cost out, the duo said it believes that the new company is positioned for growth as the industry rebounds.
– Combination positioned to create value for Baker Hughes shareholders. The diversified portfolio can deliver through the oil and gas cycle. There is a large pool of synergies that will improve operating margins and drive organic growth. The “New” Baker Hughes has a strong balance sheet, GE and Baker Hughes said.
– Combination positioned to create value for GE shareholders. The transaction is expected to be accretive to GE’s earnings per share by $.04 by 2018 and $.08 by 2020.
– The “New” Baker Hughes is expected to be the partner and employer of choice for the industry. Combination is an exceptional cultural fit, the duo said adding that both companies’ employees will benefit from being part of a larger, more diversified company.
The transaction will be executed using a partnership structure, pursuant to which 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. Baker Hughes shareholders will also receive a special one-time cash dividend of $17.50 per share at closing. The $7.4 billion contributed by GE to the new partnership will be used to fund the cash dividend to existing Baker Hughes shareholders.
Headquarters, Management and Board of Directors
The “New” Baker Hughes will have dual headquarters in Houston, Texas and London, UK.
Jeff Immelt, Chairman and CEO of GE will serve as Chairman of the Board of Directors and Lorenzo Simonelli, president and CEO of GE Oil & Gas will serve as President and Chief Executive Officer. Martin Craighead, Baker Hughes Chairman and CEO, will serve as Vice Chairman of the Board. The remainder of the executive leadership team will be a combination of existing leaders from both GE and Baker Hughes.
Upon closing, the “New” Baker Hughes 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.
The transaction is subject to approval by Baker Hughes shareholders, regulatory approvals, and other customary closing conditions.
To remind, Baker Hughes was previously in discussions to merge with another oilfield services provider, Halliburton, but the merger fell through earlier this year after a number of regulatory hurdles.