General Electric’s oil and gas division will merge with Houston-based Baker Hughes to create a new “digital industrial services giant,” the companies announced Monday morning.
The $32 billion deal combines the nation’s largest industrial giant with the world’s third-largest energy services company. The move comes just a few months after Houston-based Baker Hughes’ nearly $35 billion acquisition by Halliburton was nixed by the Justice Department because of anti-competition concerns.
GE said the combined company would become the world’s second-largest oilfield services juggernaut in revenues and employee headcount — ahead of Halliburton, but behind Schlumberger.
Boston-based GE will own 62.5 percent of the “new” Baker Hughes while current Baker investors will get a one-time cash dividend of $17.50 per share. Baker Hughes will hold onto 37.5 percent of the new company. Both of their corporate board unanimously signed off on the deal. GE will contribute $7.4 billion in cash toward the one-time dividend.
The new company formed by the merger will still be known as Baker Hughes and listed on the New York Stock Exchange. It will have dual headquarters in London and Houston.
Lorenzo Simonelli, chief executive of GE Oil & Gas will become the CEO. GE chairman and chief executive Jeffrey Immelt will become chairman of the new Baker Hughes. Baker Hughes chairman and CEO Martin Craighead will become vice chairman.
The deal is expected to close in mid-2017, the companies said.
“This transaction creates an industry leader, one that is ideally positioned to grow in any market, said Jeff Immelt, chairman and chief executive of GE, in the announcement. “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.”
Such a proposition can help GE prop up its languishing energy business while boosting Baker Hughes, which is still downsizing after its failed deal with Halliburton. The Halliburton deal, which was opposed by federal antitrust regulators, dragged in for about 18 months before it collapsed.
GE Oil & Gas CEO Lorenzo Simonelli called the deal a “transformative transaction” to create a powerful force in the oil and gas market. He said the companies are an “exceptional cultural fit” with GE’s strong digital platform and existing energy presence combining with Baker’s strong oilfield footprint and its technology and tools expertise. The goal is to create a “larger, stronger company that is positioned for long-term growth,” he said.
GE said the combined company could have about 70,000 employees, more than Halliburton, but less than the world’s largest oilfield services company, Schlumberger.
Baker Hughes has cut its workforce by 45 percent in less than two years during the oil bust and has publicly said it’s considering selling its pressure-pumping business, which includes hydraulic fracturing. The company has focused more on equipment sales and specialty oil and gas markets.
For nearly a decade, GE built its oil and gas division through acquisitions, first beefing up its deep-water business through deals of more that $1 billion for Houston-based Hydril and Vetco Gray, as well as U.K.-based Wellstream. It bought into the onshore shale boom by acquiring Lufkin Industries for $3.3 billion just a year before the oil bust kicked in. The Lufkin deal was considered a disappointment given the timing, while the deep-water sector remains mired in a slump that’s expected to continue at least well into 2017.
Because GE and Baker are different enough companies, analysts said the only segment that might draw more regulatory scrutiny is Baker’s and Lufkin’s combined strengths in artificial lift, the business of drawing oil and gas from wells long after they’re drilled and completed. The artificial lift business is best known by bobbing pump jacks, commonly called nodding donkeys.