It is no longer news/speculations that GE, one of the world’s leading industrial conglomerates, has now positioned to become one of the biggest beneficiaries of the oil downturn.
Recall that during the Halliburton – Baker Hughes failed merger, the oilfield services company originally planned to sell $7.5 billion of annual revenue generating assets to GE to satisfy antitrust concerns; in this new structure, GE will now contribute it’s GE Oil and Gas business to Baker Hughes and also pay Baker Hughes shareholders a cash distribution of $7.4 billion, or $17.50 a share.
A Baker Hughes acquisition is in line with GE’s plans to grow its oil and gas business, which is a part of its broader strategy of expanding in manufacturing while reducing exposure to GE Capital. This segment, which used to be a small part of GE, has now grown to become the fourth-largest unit as the company went on a shopping spree, spending more than $10 billion on buying energy assets over the last few years. Over the past decade, GE has undertaken nine oil and gas acquisitions valued at above $500 million each, including the 2013 purchase of Liftkin Industries, which specializes in making oil pumps, for $3.24 billion.
- GE will own 62.5 percent of the new company, which will have combined revenue of $32 billion, while Baker Hughes shareholders will own 37.5 percent.
- Shareholders of Baker Hughes, which had a market value of about $26 billion as of Friday, will get a special one-time cash dividend of $17.50 per share after the deal closes.
- GE expects the deal to add about 4 cents to its earnings per share in 2018 and 8 cents by 2020.
- Lorenzo Simonelli, chief executive of GE Oil & Gas, will be chief executive of the new company.
- GE Chief Executive and Chairman Jeff Immelt will be its chairman.
- Baker Hughes Chairman and Chief Executive Martin Craighead will serve as vice chairman.
- The board of the new company will consist of five directors appointed by GE and four appointed by Baker Hughes.
- GE shares rose 0.9% to $29.48 in pre-market trading as Baker Hughes shares rose 5.7% to $62.50.
- GE has done more than $14 billion of acquisitions since 2007 to build its oil-and-gas business.
- The transaction, expected to close in the middle of next year.
- Centerview Partners and Morgan Stanley served as financial advisers to GE on the deal, while Shearman & Sterling provided legal advice
- Goldman Sachs Group Inc. advised Baker Hughes on financial matters and Davis Polk was the company’s legal adviser.
- The company will have dual headquarters in Houston and London.
- There is no guarantee a GE-Baker Hughes deal will be completed.
By buying Baker Hughes, GE can potentially propel the position of its oil and gas unit as the third largest player in the global oilfield services industry, surpassing some of the biggest companies, such as Weatherford International (NYSE:WFT). It is also unlikely that it will face a significant opposition from the regulators.