Baker Hughes' Merger With GE Would Create Second-Largest Oilfield Services Company

General Electric has agreed to combine its oil and gas business with Baker Hughes Inc., creating an industry giant with a broader suite of offerings amid the ongoing slump in crude prices.

Baker Hughes is the smallest of the three leading global oilfield-services companies, which help oil and gas companies drill and keep wells running.

Halliburton Co. attempted a buyout of Baker Hughes earlier this year, but it abandoned the $35 billion bid after USA antitrust regulators stepped in.

"By drawing from GE technology expertise and Baker Hughes capabilities in oilfield services, the new company will provide best-in-class physical and digital technology solutions for customer productivity".

The size GE and Baker Hughes transaction and the timing led industry analysts to believe that companies have already adjusted to the lower oil price in their strategies. "This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes", GE Chairman and CEO Jeff Immelt said. "If GE were to do nothing with this business, there was a risk of asset erosion over time", he said. GE refers to the technology that has applications across multiple industries as the GE Store.

A combination creates a company with more than $32 billion in revenue that could cut costs to better compete with rivals such as No. 1 oilfield services provider Schlumberger.

GE will own 62.5% of the partnership, while BHI shareholders will own 37.5% of the partnership via a newly listed corporation.

GE Oil & Gas is GE's only major businesses that was "sub-scale, lacked product breadth and measurably losing market share in a few key product lines", Barclays analyst Scott Davis said. A Penn State University-trained petroleum engineer, Craighead worked in several of Baker Hughes' business units, from Latin America to Asia, during his ascension within the company.

Most analysts, however, say Baker Hughes and GE's oil and gas operations have little overlapping business, making big divestitures less likely. Yet GE will still be able to capture more of the upside if oil prices rebound.

The deal was unanimously endorsed by directors of both companies but needs the approval of Baker Hughes shareholders and regulators.

The drag on deal-making could come from the banks that help finance and advise on transactions, however.

GE said the deal would add about 4 cents per share to GE earnings in 2018 and 8 cents per share by 2020.

Lorenzo Simonelli, CEO of GE Oil & Gas, will be chief executive of the new company and Immelt will be its chairman. GE would pick five of the nine directors.

General Electric Firm (NYSE:GE) [Trend Analysis] retains strong position in active trade, as shares scoring -0.41% to $29.10 in a active trade session, while looking at the shares volume, about 43.49 Million shares have changed hands in this session.

GE rose 0.9 percent to $29.49 at 10:26 a.m.in NY, while Baker Hughes fell 0.5 percent to $58.82.

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