GE To Merge Oil And Gas Business With Baker Hughes

(RTTNews) - Diversified conglomerate General Electric Co. (GE) and oil-field services provider Baker Hughes Inc. (BHI) have agreed to combine GE's oil and gas business with Baker Hughes, the two companies said Monday. Shares of Baker Hughes are gaining more than 7 percent in pre-market activity.

The deal will create the second largest player in the oilfield equipment and services industry, just behind Schlumberger Ltd. (SLB). The "New" Baker Hughes will be an equipment, technology and services provider in the oil and gas industry with $32 billion of combined revenue and operations in more than 120 countries.

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 percent interest in the partnership and existing Baker Hughes shareholders will own the remaining 37.5 percent stake through a newly NYSE listed corporation.

Under the terms of the deal, Baker Hughes shareholders will receive a special one-time cash dividend of $17.50 per share at the closing of the transaction. GE will contribute $7.4 billion to the new partnership, which will be used to fund the cash dividend to existing Baker Hughes shareholders.

The transaction, which is expected to close in mid 2017, has been approved by the boards of directors of both companies. It is subject to approval by Baker Hughes shareholders.

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 CEO of the combined company.

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 the directors including Chairman Jeff Immelt will be appointed by GE. The remaining four directors, including Vice Chairman Martin Craighead, will be appointed by Baker Hughes.

The two companies expect to generate total run-rate synergies of $1.6 billion by 2020, which has a net present value of $14 billion. The transaction is expected to add about $0.04 to GE's earnings per share in 2018 and also add $0.08 by 2020.

In 2014, Baker Hughes agreed to sell itself to rival Halliburton Co. (HAL) for $35 billion, or $78.62 per share. However, earlier this year, the U.S. Justice Department filed a lawsuit to block the proposed merger and the deal fell apart.

In Monday's pre-market activity, GE is adding $0.36 or 1.23 percent to $29.58. BHI is adding $4.49 or 7.59 percent to $63.61.