General Electric is joining forces with Houston based Baker Hughes to create a USD 32 billion oil business, anticipating a rebound for an industry mired by a historic slump in crude prices.
The new company will be one of the industry's largest players, bringing together a portfolio of capabilities spanning oilfield services, equipment manufacturing and technology.
Boston based GE will own 62.5 per cent of the merged entity, which will be publicly traded, the companies said today. The deal is expected to close in the middle of next year.
Also Read
The transaction is subject to approval by regulators and Baker Hughes shareholders, as well as other customary closing conditions. GE will contribute USD 7.4 billion to fund a special dividend of USD 17.50 a share to Baker Hughes stockholders.
GE rose 0.9 per cent to USD 29.49 at 10:26 a.M. In New York, while Baker Hughes fell 0.5 per cent to USD 58.82. GE had fallen 6.2 per cent this year through Friday, compared with a 4 per cent gain in the Standard & Poor's 500 Index.
Baker Hughes rose 28 per cent over the same period.
Lorenzo Simonelli, CEO of GE Oil & Gas, will serve in the same role at the "new Baker Hughes," while Immelt will be chairman and Baker Hughes CEO Martin Craighead will be vice chairman, according to the statement.
The company will have dual headquarters in Houston and London.
The transaction will add 4 cents a share to GE's earnings in 2018 and 8 cents by 2020, GE said.
The company anticipates "runrate synergies," or savings through cost cuts, of USD 1.6 billion by 2020.
The new company has growth opportunities including through increased adoption of new technology such as GE's Predix operating system, Immelt said.
Moody's Investors Service, S&P Global Ratings and Fitch Ratings affirmed GE's credit level following the announcement and said the outlook is stable.
"Fitch expects global exploration and production spending and activity to increase moderately in 2017 with a more robust growth profile in 2018," the ratings company said in a statement.
By joining forces, Baker Hughes and GE are betting they can compete more effectively with the world's top oilfield-services provider, Schlumberger Ltd., which recently bought equipment-maker Cameron International.
Oilfield contractors are increasingly forming partnerships to help cut costs and expand their offerings and distribution channels amid the downturn.
The oil-services and equipment sectors have been among the hardest hit in the industry's two-year downturn, contributing the largest chunk of the more than 350,000 jobs slashed globally.
At least 100 North American oilfield-service companies have gone bankrupt in 2015 and 2016 as energy prices slid, according to a tally by law firm Haynes & Boone.
Disclaimer: No Business Standard Journalist was involved in creation of this content
