uploads///Deal Structure

GE Proposes Combining Its Oil & Gas Business with Baker Hughes

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Nov. 1 2016, Published 2:50 p.m. ET

The GE–Baker Hughes deal

On October 31, 2016, General Electric (GE), the self-described “global digital industrial company,” disclosed that it intended to combine its Oil & Gas business with Baker Hughes (BHI) to form a partnership dubbed “Baker Hughes, a GE company.” BHI is the third-largest oilfield equipment and services (or OFS) company in the United States by market capitalization.

GE will own 62.5% of the partnership, while BHI shareholders will own 37.5% of the partnership via a newly listed corporation. Existing BHI shareholders will also receive $17.50 per share as a special dividend. Let’s take a look at a simplified illustration of the deal.

GE and BHI offer complementary products and services in the offshore and onshore completion and production service business and the evaluation and drilling business. Aside from this, GE also has exposure to the midstream and downstream energy services and equipment businesses.

GE’s combining its Oil & Gas assets with BHI is expected to create a complementary technology platform, a wider product offering, and cost optimization benefits. BHI’s core business could benefit from GE’s advanced technology and wide customer base.

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Transaction closure

GE’s proposed partnership with Baker Hughes has been approved by the boards of both companies, but it has yet to be approved by BHI’s shareholders. The deal will also need regulatory approvals before completion. The deal is expected to close in mid-2017. Later in the series, we’ll discuss the deal’s financial terms in greater detail.

Management structure

Lorenzo Simonelli, currently president and CEO of GE Oil & Gas, will become the CEO of the partnership. Jeff Immelt, GE’s current CEO, will become its chair. Martin Craighead, BHI’s current CEO, will become the vice chair.

Size and type matter

On October 31, 2016, GE and BHI’s market capitalizations stood at $261.8 billion and $25.3 billion, respectively. Schlumberger (SLB) and Halliburton (HAL), with market capitalizations of $110.1 billion and $40.1 billion, are among the top OFS companies by market capitalization and revenue. SLB and HAL make up a combined 34.7% of the VanEck Vectors Oil Services ETF (OIH).

Earlier this year, on May 19, FMC Technologies (FTI), a Texas-based OFS company, disclosed that it would combine with Technip, a France-based OFS company. Read more on the pending acquisition in Market Realist’s FMC Technologies and Technip to Form Energy Services Giant.

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