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Baker Hughes's Weakness despite Synergy Opportunities

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Part 2
Baker Hughes's Weakness despite Synergy Opportunities PART 2 OF 7

How Baker Hughes Benefits from Its Latest Merger

Baker Hughes merged with GE

On July 3, 2017, BHGE was formed from combination Baker Hughes and GE’s (GE) oil and gas business. (You can read more about this in Market Realist’s series GE to Partner with BHI? The Changing Oilfield Services Landscape.)

According to GE’s management, the cost synergies from the merger are expected to add $0.04 to GE’s earnings by 2018 and $0.08 by 2020. The synergy is expected to result from double throughput and a 50% part reduction in the combined Baker Hughes. The combined company, which is estimated to see $32 billion in annual revenues, could achieve $1.6 billion in annualized revenues and cost synergies by 2020.

How Baker Hughes Benefits from Its Latest Merger

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BHGE makes up 2.3% of the SPDR S&P Oil & Gas Equipment & Services ETF (XES). XES has fallen 22% in the past year, compared with the 1% fall in BHGE’s stock price. The DJIA-INDEX has risen 18% in the past year.

How does Baker Hughes benefit from the merger?

In combination with GE’s oil and gas business, Baker Hughes can now provide efficient solutions to North American energy producers through the following:

  • four primary product categories, with services including oilfield services, oilfield equipment, turbomachinery and process solutions, and digital solutions
  • fullstream offerings, with a full value chain of oil and gas activities that can improve productivity and project economics through integrated equipment and service offerings
  • an integrated ecosystem combining Baker Hughes’s reservoir modeling expertise and GE’s design and manufacturing capability and integrating Baker Hughes’s completion equipment suite with GE’s advanced wellbore placement
  • drilling automation using predictive analytics software like GE’s Predix

Now let’s discuss Baker Hughes’s recent value drivers.

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