GE and Baker Hughes to create fullstream digital industrial service company
GE and Baker Hughes have entered into an agreement to combine GE’s oil and gas business (GE Oil & Gas) and Baker Hughes to create a world-leading oil and gas technology provider with a unique mix of service and equipment capabilities. The “New” Baker Hughes will be a leading equipment, technology and services provider in the oil and gas industry with $32 B of combined revenue and operations in more than 120 countries. By drawing from GE technology expertise and Baker Hughes capabilities in oilfield services, the new company will provide physical and digital technology solutions for customer productivity.
Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, at the closing of the transaction Baker Hughes shareholders will receive a special one-time cash dividend of $17.50/share and 37.5% of the new company. GE will own 62.5% of the company. The transaction is expected to close in mid-2017.
Strategic and financial benefits of the transaction. Complementary assets and integrated offerings will provide differentiated services for combined company’s customers. The company will combine the digital solutions, manufacturing expertise and technology from the GE Store and the outstanding track record of success Baker Hughes has in the oilfield services sector. With combined revenue of over $32 B, the product portfolio of GE Oil & Gas and Baker Hughes in drilling, completions, production and midstream / downstream equipment and services will create the second largest player in the oilfield equipment and services industry. Customers should expect sustainable innovation and integration that will deliver valuable outcomes. As one company, we will have operations in more than 120 countries. Both companies have invested even in the downturn and have strong, complementary competitive scope across the industry. From GE’s fullstream oil and gas manufacturing and technology solutions spanning across subsea & drilling, rotating equipment, imaging and sensing to the Baker Hughes portfolio in drilling and evaluation and completion and production, the combined company will be moving beyond oilfield services and into oil and gas productivity solutions.
The combination produces substantial synergies through combined efficiency and growth. The companies expect to generate total runrate synergies of $1.6 B by 2020, which has a net present value of $14 B. While this is primarily driven by cost out, we believe that the new company is positioned for growth as the industry rebounds.
Combination positioned to create value for Baker Hughes shareholders. The diversified portfolio can deliver through the oil and gas cycle. There is a large pool of synergies that will improve operating margins and drive organic growth. The “New” Baker Hughes has a strong balance sheet.
Combination positioned to create value for GE shareholders. The transaction is expected to be accretive to GE’s earnings per share by $.04 by 2018 and $.08 by 2020. This is another step in creating the premium digital industrial company.
The “New” Baker Hughes is expected to be the partner and employer of choice for the industry. Combination is an exceptional cultural fit. Both companies’ employees will benefit significantly from being part of a larger, more diversified company.
Financial structure. The transaction will be executed using a partnership structure, pursuant to which GE Oil & Gas and Baker Hughes will each contribute their operating assets to a newly formed partnership. GE will have a 62.5% interest in this partnership and existing Baker Hughes shareholders will have a 37.5% interest through a newly NYSE listed corporation. Baker Hughes shareholders will also receive a special one-time cash dividend of $17.50/share at closing. The $7.4 B contributed by GE to the new partnership will be used to fund the cash dividend to existing Baker Hughes shareholders.
Headquarters, management and board of directors. The “New” Baker Hughes will have dual headquarters in Houston, Texas and London, UK.
Jeff Immelt, Chairman and CEO of GE will serve as Chairman of the Board of Directors and Lorenzo Simonelli, president and CEO of GE Oil & Gas will serve as President and Chief Executive Officer. Martin Craighead, Baker Hughes Chairman and CEO, will serve as Vice Chairman of the Board. The remainder of the executive leadership team will be a combination of existing leaders from both GE and Baker Hughes.
Upon closing, the “New” Baker Hughes board will consist of nine directors: five of whom, including Chairman Jeff Immelt will be appointed by GE and four, including Vice Chairman Martin Craighead will be appointed by Baker Hughes.
Path to completion. The transaction is subject to approval by Baker Hughes shareholders, regulatory approvals, and other customary closing conditions.
GE and Baker Hughes are committed to working constructively with the relevant government regulators to achieve the necessary approvals.
Comments