GE merges oilfield unit with Baker Hughes

GE will inject its huge oil and gas operations into Baker Hughes and take a 62.5 per cent ownership of the combined company, which will retain the Baker Hughes brand name. (AFP/Yasuyoshi Chiba)

GE will inject its huge oil and gas operations into Baker Hughes and take a 62.5 per cent ownership of the combined company, which will retain the Baker Hughes brand name.

Baker shareholders will hold the rest of the company, and also will receive a special dividend of US$17.50 a share, a payout by GE to consummate the deal totalling US$7.4 billion.

The two companies have about US$32 billion in revenues and operations in 120 countries. Directors of both have approved the deal, which now needs approval by shareholders.

Baker Hughes brings to the deal a century of experience in support for oil and gas drillers, but has been hard hit by the pullback in exploration activity since the oil price crash in 2014. Baker is one of the leading companies for well drilling, completion and production.

GE is a leader in subsea drilling equipment and in turbines and compressors for liquefied natural gas operations and oil and gas processing systems. It also is strong in digital systems for monitoring and inspection of oil and gas systems.

"As we go forward, this transaction accelerates our capability to extend the digital framework to the oil and gas industry," said GE chairman and chief executive Jeff Immelt.

The merger is expected to create a stronger services company for the oil and gas exploration and production sector in the face of tough competition with market leader Schlumberger and the number two player Halliburton, whose effort to take over Baker Hughes was blocked by opposition from US antitrust regulators earlier this year.

GE has expanded aggressively into the industry under Immelt, only to see growth slow after crude prices lost around 75 per cent in 2014-2015 and large and small oil exploration and production companies slashed investment spending.

Immelt said the industry's recovery will remain slow over the next couple years. "We can weather the cycle in the short term and will be very well positioned to lead the industry" when the pickup does come, he said.

The merger will create a company with 70,000 employees under the leadership of current GE Oil & Gas chief executive Lorenzo Simonelli.

Immelt adds to his portfolio the title of chairman of the new Baker Hughes, and current Baker Hughes chairman and chief executive Martin Craighead will be vice chair.

The combined company expects total revenues to rise to US$34 billion by 2020, with US$1.6 billion in annual savings from business synergies by then.

Baker Hughes shares surged last week after the first reports of the impending deal, but with crude prices sinking 2.6 per cent on Monday, it fell along with all the major service companies. In late morning trading Baker Hughes was down 1.6 per cent at US$58.16, still above the US$52 level before news leaked out.

GE shares meanwhile added 0.3 per cent to US$29.31.