General Electric is merging its oil and gas business with Baker Hughes
Jeff Immelt, the General Electric Co. CEO, at a news conference in New Delhi in 2015. REUTERS/Adnan Abidi
General Electric Co., banking on a recovery in oil prices, said on Monday it would merge its oil and gas business with the No. 3 oil-field services provider, Baker Hughes Inc.
GE will own 62.5% of the new publicly traded company, which will have combined revenue of $32 billion, while Baker Hughes shareholders will own 37.5%.
Shareholders of Baker Hughes, which had a market value of about $26 billion as of Friday, will get a special one-time cash dividend from GE of $17.50 a share — or a total of $7.4 billion — after the deal closes.
Baker Hughes had planned to combine with its bigger rival Halliburton Co., but the transaction fell through in May because of opposition from regulators. That deal was valued at $34.6 billion when it was announced in November 2014.
The combination of GE Oil & Gas and Baker Hughes will create the second-largest player in the oil-field services industry in terms of revenue after Schlumberger.
The GE-Baker Hughes deal comes at a time when North American oil and gas producers are putting rigs back to work after a near freeze in activity caused by a slump in oil prices that began mid-2014. Global oil prices have risen by a third this year to trade near $50 a barrel.
GE said last week it believed the oil market had bottomed, but that demand for the gear the company makes would take longer to recover, probably until after the first half of next year.
GE's oil and gas business, which makes blowout preventers, pumps, and compressors used in exploration and production, accounted for 14% of the company's total revenue in 2015.
Baker Hughes supplies a variety of oil-field services, products, technology, and systems.
"This transaction creates an industry leader, one that is ideally positioned to grow in any market," GE CEO Jeff Immelt said in a statement.
"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."
Lorenzo Simonelli, the CEO and president of GE Oil & Gas, will be CEO of the new company. Immelt will be chairman, and Baker Hughes CEO Martin Craighead will be vice chairman.
The companies said on Monday that the deal was expected to add $0.04 to GE's earnings per share by 2018 and $0.08 by 2020.
GE and Baker Hughes had said on Thursday they were in talks over potential partnerships. The Wall Street Journal first reported that the companies were in discussions.
Baker Hughes shares were up 12% at $66.20 in premarket trading on Monday. The stock had closed at $54.55 on Thursday ahead of the Journal report.
GE's shares were up 0.3% at $29.32 in light trading.
(Reporting by Ankit Ajmera and Swetha Gopinath in Bengaluru; Editing by Ted Kerr)
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