General Electric is moving forward with a plan to merge their oil and gas business with Baker Hughes Inc. This will create the second largest oilfield services provided in the world at a time when competition within the industry is increasing to supply more-efficient products and services to the energy industry.
The deal will form a company with $32 billion in annual revenue, thriving off GE’s expertise in making equipment for oil producers and Baker Hughes’s strength in drilling and fracking new wells. GE is the leader in the oilfield equipment making industry with their blowout preventers, pumps, and compressors used in production and exploration. They are working towards providing large data processing services.
Baker Hughes is one of the industry’s leaders in chemicals used to frack, horizontal drilling, and other areas essential to oil production. GE Chief Executive Jeff Immelt said, “Both of them are quite complimentary in terms of their skills set. Our oil gas customers are going to want more productivity solutions.”
The new proposed company will put Baker Hughes’s market share ahead of their rival Halliburton Co., which has previously tried to buy Baker. The new company will be in a better place to compete directly with Schlumberger.
It is not believed that regulators will prevent the merger since the companies businesses have little overlap. Baker Hughes and GE will start working with the Justice Department and European antitrust enforcers to work out any kinks.
GE will own 62.5 percent of the new company after the deal will close mid-2017. Baker Hughes shareholders, which have a market value of around $26 billion, will get a one-time cash dividend from GE at $17.50 a share or $7.4 billion once the deal closes.
The new name of the company is not yet known. It will keep headquarters in London and Houston. GE is being advised by Morgan Stanley and Centerview Partners for the financial matters and Shearman & Sterling in the legal matters. Baker Hughes is advised by Goldman Sachs & Co in the financial dealings and Davis Polk for legal.
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To learn more about other company’s trying to merge, read AT&T, Time Warner Plan $85 Billion Merger.