On Monday, two major industry companies made an official announcement: General Electric’s oil and gas sector will be merging with Houston’s own Baker Hughes in an effort to create a brand new “digital industrial services giant.”
The deal, valued at roughly $32 billion, will unite the country’s biggest industrial company with the third-largest energy services giant in the world. The merger arrives just six months after Baker Hughes’ $35 billion acquisition by Halliburton was axed by the Justice Department due to anti-competition fears.
According to General Electric (GE), the merger would produce the second-biggest oilfield services company in the world in employee count and revenue, just behind Schlumberger and just ahead of Halliburton. GE’s oil and gas division makes blowout preventers, pumps and compressors used in exploration and production and made up 14 percent of the company’s total revenue in 2015.
Baker Hughes offers an assortment of oilfield products, technology and systems.
The deal reveals that GE will hold 62.5 percent of the “new” and improved Baker Hughes. In the meantime, current investors of Baker Hughes will receive a one-time cash dividend of $17.50 for each share. GE will throw in $7.5 billion in cash toward the one-time dividend. Baker Hughes will own 37.5 of the new company. The new company will continue to go by the name of Baker Hughes, a name that will be registered on the New York Stock Exchange. Headquarters for the new company will be based in London and Houston.
The chief executive GE’s oil and gas division, Lorenzo Simonelli, will become the CEO for the new company. Jeffrey Immelt, GE chief exec and chairman, will become chairman. The new company’s vice chairman will be Baker Hughes’ chairman and CEO, Martin Craighead. Of the nine board members of the new company, GE will assign five and Baker Hughes will assign four. The closing of the deal is projected for the middle of 2017.
“This transaction creates an industry leader, one that is ideally positioned to grow in any market, said Immelt. He continued, “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.”
Simonelli called the plan a “transformative transaction” that will produce a mighty force in the oil market. He also said that the two companies are a “cultural fit” as GE’S powerful digital platform and energy presence unite with Baker Hughes’ solid oilfield footprint and technology expertise. The goal, said Simonelli, is to create a “larger, stronger company that is positioned for long-term growth.”
The deal could aid GE through its floundering energy business while providing a boost for Baker Hughes which is still downsizing after its botched deal with Halliburton. In less than two years amid the oil glut, Baker Hughes has slashed its workforce down by 45 percent. GE reported that the combined company could potentially have around 70,000 workers in its employ.
On Monday, the companies said that the deal was estimated to add 4 cents to GE’s earnings per share by 2018 and 8 cents per share by 2020.