When GE met Baker Hughes: An SEC filing tells their story
General Electric started its flirtation almost two years ago, reaching out to Baker Hughes about buying business segments like well completions and offshore cementing as the Houston oil field services company prepared for its merger with local rival Halliburton.
Halliburton and Baker Hughes planned to sell assets to appease federal regulators worried the merger would create monopolies in several markets. It didn’t work, and the merger collapsed at the end of last April.
But GE already had its peek under the hood. Wasting little time, GE Oil & Gas CEO Lorenzo Simonelli on May 2 requested a meeting with Baker Hughes’ chief executive, Martin Craighead, according to a new filing with the U.S. Securities and Exchange Commission that documents the timeline that led to merger between Baker Hughes and GE’s oil and gas division.
“Once that transaction didn’t take place, I seized the opportunity to really connect with Martin,” Simonelli said in a prior interview.
Unlike the Halliburton deal, which started with threats of a hostile takeover, Simonelli entered as a friend who wanted to “discuss potential areas of collaboration … across a range of market segments and product lines,” the SEC filing said.
They didn’t even discuss a potential merger or acquisition when they met one week later. That topic first arose in mid-July, when Simonelli broached whether Baker Hughes would be willing to sell portions of the company. Craighead said Baker Hughes wasn’t interested.
Simonelli tried again in late August, asking to meet with Craighead about a “broader potential strategic combination.” GE’s chairman and CEO, Jeff Immelt, attended the meeting on Sept. 15 and the talks escalated quickly.
Craighead came away impressed by GE’s innovative culture and talent, he said in an interview last year.
“For me, that was the tipping point that there was a deal to be done here,” he said.
Rather than a flat-out acquisition, Immelt proposed on Oct. 7 to acquire 65 percent of Baker Hughes and merge it with its GE Oil & Gas division. GE would pay $6 billion in cash to fund a special dividend for Baker Hughes shareholders. That amount was later upped to $7 billion and then to $7.4 billion.
On Oct. 13, Immelt made his “best and final offer,” agreeing to reduce the ownership stake to 62.5 percent. Craighead insisted on retaining the Baker Hughes name, and they agreed on the phrasing “Baker Hughes, a GE company.”
The final details were worked out in late October. GE increased the proposed breakup fee from $800 million to $1.3 billion. (Halliburton paid a $3.5 billion termination penalty to Baker Hughes.)
The deal was finalized Oct. 30 and announced one day later. The merger — still pending with regulators —is expected to close within a few months.
Immelt will serve as the Baker Hughes chairman and Craighead as vice chair. Simonelli becomes the Baker Hughes CEO, with a seat on the board. GE will control six of the 11 directors.
The combined company will employ more than 70,000, surpassing Halliburton and ranking only behind Schlumberger in oil field services. But, with promises of $1.2 billion in savings by 2020, job reductions are likely.
Craighead will be more than fine. His anticipated golden parachute is about $41 million — much higher than the nearly $29 million promised under the Halliburton deal.
“For me, that was the tipping point that there was a deal to be done here.” Martin Craighead of Baker Hughes