GE and Baker Hughes agree to create new oilfield services company

GE has agreed to merge its oil and gas business with Baker Hughes to create a new oilfield technology services company with annual revenues of $32bn from providing physical and digital technology.

The new Baker Hughes will be 62.5%-owned by GE, with Baker Hughes shareholders owning the remaining 37.5% and receiving a $17.50 per share special cash dividend, of which GE will contribute $7.4bn, on completion of the transaction, which is expected in mid-2017.

GE forecast it will see the first benefit to earnings in 2018, with approximately four cents accretion to earnings per share, while by 2020 there are expected to be synergies of $1.6bn realised.

Baker Hughes current chief executive officer Martin Craighead will become vice chairman, with GE's current president and CEO, Lorenzo Simonelli, taking charge and GE CEO Jeff Immelt becoming chairman.

“This transaction creates an industry leader, one that is ideally positioned to grow in any market," said Immelt.

"Oil & gas customers demand more productive solutions. This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes."

Analyst Naeem Aslam at Think Markets said the deal would allow GE and Baker Hugest to better compete with rivals such as Schlumberger and was likely to see US shale oil breakeven point, which has already halved in recent years, further improve from its near-$33 level.

"General Electric’s high installed base and service driven model will provide a very lucrative opportunity for Baker Hughes. GE has been trying to increase the equipment margin and this deal will provide them this opportunity," he added. "So the deal will make them compete better with the big guys in the world who have lower breakeven points. Thanks to cheap money and lower interest rates which are making these transaction more feasible."