GE, Baker Hughes Deal to Create Energy Powerhouse
October 31 2016 - 6:10AM
Dow Jones News
General Electric Co. reached a deal to combine its oil-and-gas
business with Baker Hughes Inc., creating a publicly traded energy
powerhouse that would give GE a cost-effective way to play any
recovery in the industry.
GE will contribute its oil-and-gas business and $7.4 billion
through a special one-time cash dividend of $17.50 for each Baker
Hughes share. The new company will be publicly traded on the New
York Stock Exchange and will be 62.5% owned by GE and 37.5% owned
by Baker Hughes shareholders.
The Wall Street Journal reported last week that the companies
were in talks about a potential transaction.
A combination creates a company with more than $32 billion in
revenue that could cut costs to better compete with rivals such as
Schlumberger Ltd. to provide equipment and services to oil rigs and
wells. It would enable GE to benefit from an expected recovery in
the industry without having to pay for a full acquisition of Baker
Hughes. It would also enable the companies and their shareholders
to benefit from savings and other synergies from putting the two
businesses together.
After two brutal years for the oil-and-gas business, GE and some
of its rivals in the industry have begun to see signs of hope.
Crude prices, which plunged to $30 a barrel this year from more
than $100 in 2014, have rebounded to around $50 recently.
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 and 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 premarket trading as Baker
Hughes shares rose 5.7% to $62.50.
GE provided glimmers of improvement from the third quarter,
noting that U.S. rig and well counts remained down 50% from the
previous year but had ticked upward in the previous three months.
Still, orders for services were down across all of GE's oil
business, the company said.
In recent public comments, GE has said it is still committed to
the oil and gas unit for the long term, but GE said operating
profit in the unit will be down by 30% for the year. GE is cutting
more than $1 billion in costs out of the company over two
years.
The recent speedup in what has already been a strong year for
mergers and acquisitions defies conventional wisdom, coming less
than two weeks before the presidential election. The fact that
companies are inking mergers at a breakneck pace without knowing
who the next president will be shows how strong the imperative to
consolidate across industries is, bankers say.
There is no guarantee a GE-Baker Hughes deal will be completed.
The last merger agreement Baker Hughes entered into—a $35 billion
proposed union with Halliburton Co.—was rejected by antitrust
regulators this year amid a tough environment for deals in
Washington.
Before Baker Hughes and Halliburton had to abandon their merger
plans, the companies held talks with GE to sell a package of assets
valued at more than $7 billion to help win regulatory approval.
Ted Mann and Austen Hufford contributed to this article.
Write to Dana Cimilluca at dana.cimilluca@wsj.com, Dana Mattioli
at dana.mattioli@wsj.com and David Benoit at
david.benoit@wsj.com
(END) Dow Jones Newswires
October 31, 2016 06:55 ET (10:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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