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General Electric to Merge Oil and Gas Business with Baker Hughes (GE, BHI)


General Electric to Merge Oil and Gas Business with Baker Hughes (GE, BHI)


Shares of General Electric Company (GE) are rising in the pre-market session Monday after the industrial conglomerate announced it will merge its oil and gas business with the oilfield services provider Baker Hughes (BHI).


The Fairfield, Connecticut based GE, which is looking to capitalize on the recovery in the energy market, plans to contribute its oil and gas business and some cash to the new entity, which will have publicly traded shares and be majority-owned and controlled by GE.


The terms of the deal have been agreed upon by the boards of both companies. At the closing of the transaction, Baker Hughes shareholders will receive a special one-time cash dividend of $17.50 per share and 37.5% of the new company. GE will own 62.5% of the company. The transaction is expected to close in mid-2017.


According to the press release announcing the deal, “The New” Baker Hughes will be a leading equipment, technology and services provider in the oil and gas industry with $32 billion of combined revenue and operations in more than 120 countries.”


Upon the closing of the deal, the combined company, which has a net present value of $14 billion, is expected to generate total runrate synergies of $1.6 billion by 2020. The expected synergies is projected to be driven primarily by cost savings. But both firms assure the market that the new company will also be focused on growth.


“This transaction creates an industry leader, on that is ideally positioned to grow in any market. 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,” said GE CEO Jeff Immelt in a statement.


Martin Craighead, CEO of Baker Hughes said, “The combination of our complementary assets will create a platform capable of seamless integration while we enhance our ability to deliver optimized and integrated solutions and increase touch points with our customers.”


The deal is expected to be accretive to GE’s earnings per share by 4 cents by 2018 and 8 cents by 2020. It remains to be seen if this deal will suffer from the immense regulatory anti-trust scrutiny imposed on Halliburton Company (HAL), which failed in its attempt to acquire Baker Hughes earlier this year.