GE merges oil­field unit with Baker Hughes

The Myanmar Times - - Business -

GEN­ERAL Elec­tric has merged its oil­field unit with Baker Hughes, bet­ting the com­bined com­pany will be bet­ter po­si­tioned for an oil in­dus­try re­bound af­ter the crude price crash.

GE will in­ject its huge oil and gas op­er­a­tions into Baker Hughes and take a 62.5 per­cent own­er­ship of the com­bined com­pany, which will re­tain the Baker Hughes brand name.

Baker share­hold­ers will hold the rest of the com­pany, and also will re­ceive a spe­cial div­i­dend of US$17.50 a share, a pay­out by GE to con­sum­mate the deal to­talling $7.4 bil­lion.

The two com­pa­nies have about $32 bil­lion in rev­enues and op­er­a­tions in 120 coun­tries.

Baker Hughes brings to the deal a cen­tury of ex­pe­ri­ence in sup­port for oil and gas drillers, but has been hit hard by the pull­back in ex­plo­ration ac­tiv­ity since the oil price crash in 2014.

Baker is one of the lead­ing com­pa­nies for well drilling, com­ple­tion and pro­duc­tion. GE is a leader in sub­sea drilling equip­ment and in tur­bines and com­pres­sors for liq­ue­fied nat­u­ral gas op­er­a­tions and oil and gas pro­cess­ing sys­tems.

It also is strong in dig­i­tal sys­tems for mon­i­tor­ing and in­spec­tion of oil and gas sys­tems.

“As we go for­ward, this trans­ac­tion ac­cel­er­ates our ca­pa­bil­ity to ex­tend the dig­i­tal frame­work to the oil and gas in­dus­try,” said GE chair and chief ex­ec­u­tive Jeff Im­melt.

The merger is ex­pected to cre­ate a stronger ser­vices com­pany for the oil and gas ex­plo­ration and pro­duc­tion sec­tor in the face of tough com­pe­ti­tion with mar­ket leader Sch­lum­berger and the num­ber-two player Hal­libur­ton, whose ef­fort to take over Baker Hughes was blocked by op­po­si­tion from US an­titrust reg­u­la­tors ear­lier this year.

GE has ex­panded ag­gres­sively into the in­dus­try un­der Mr Im­melt, only to see growth slow af­ter crude prices lost around 75pc in 2014-15 and large and small oil ex­plo­ration and pro­duc­tion com­pa­nies slashed in­vest­ment spend­ing.

Mr Im­melt said the in­dus­try’s re­cov­ery will re­main slow over the next cou­ple years.

“We can weather the cy­cle in the short term and will be very well po­si­tioned to lead the in­dus­try” when the pick-up does come, he said.

The merger will cre­ate a com­pany with 70,000 em­ploy­ees un­der the lead­er­ship of cur­rent GE Oil & Gas chief ex­ec­u­tive Lorenzo Si­monelli.

Mr Im­melt adds to his port­fo­lio the ti­tle of chair of the new Baker Hughes, and cur­rent Baker Hughes chair and chief ex­ec­u­tive Martin Craig­head will be vice chair.

The two com­pa­nies said that, when com­bined, they ex­pect to­tal rev­enues to rise to $34 bil­lion by 2020, with $1.6 bil­lion in an­nual sav­ings from busi­ness syn­er­gies by then.

But an­a­lysts had their doubts given the lim­ited over­lap be­tween the busi­nesses, and with Baker al­ready hav­ing trimmed its op­er­a­tions amid the oil mar­ket crash, that much sav­ings will be squeezed out in this deal.

An­a­lysts at Jef­fries said the im­plied price for Baker in the deal was not par­tic­u­larly gen­er­ous and cal­cu­lated mainly based on the fore­cast $1.6 bil­lion “syn­ergy” sav­ings.

That es­ti­mate “sur­prises”, Jef­fries said in a client note, com­pared to the only $500 mil­lion in sav­ings pro­jected from ri­val Sch­lum­berger’s takeover ear­lier this year of Cameron In­ter­na­tional.

“We are not as com­fort­able with the logic of ‘BHI can make it work if SLB [Sch­lum­berger] can.’”–

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