GE chief resigns as feds OK deal
Baker Hughes merger was part of Immelt’s effort to remake firm
On the day that Jeffrey Immelt said he would step down as chairman and CEO of General Electric, the U.S. Department of Justice cleared the way for the $23 billion merger between GE’s oil and gas division and Houston’s Baker Hughes to create the world’s second largest energy services company.
The combination, which Immelt helped engineer last year, was part of his efforts to expand GE’s position in the oil and gas industry and remake GE as a 21st century industrial company, driven by technology, innovation and data. Analysts don’t expect Immelt’s retirement to affect the merger: He will still become chairman of the combined firm, called Baker Hughes, a GE company.
The merger is expected to close next month, pending shareholder approval.
“It’s a big deal,” said Dave Anderson, an analyst for Barclays, the multinational bank. “Baker Hughes becomes a much bigger player.”
Immelt, who spent his entire career at GE, will retire after 16 years of leading one of the world’s largest conglomerates.
He succeeded the legendary GE chief Jack Welch in September 2001, guiding the company through the turmoil that followed the Sept. 11 attacks and later the global financial crisis.
Unlike Welch, who pushed the company founded by Thomas Edison into sectors beyond the company’s core manu-
facturing business, Immelt refocused the company on making things.
He yanked the company almost entirely out of the financial services sector, dumping the bulk of GE Capital Real Estate assets for more than $26 billion, as he positioned GE in a digital age of smart, interconnected industrial devices.
The renewed emphasis on technology underscored GE’s move last year to relocate its headquarters to Boston, a tech hub supported by research at universities such as Harvard and the Massachusetts Institute of Technology. But Immelt’s strategy did not impress Wall Street, which wanted faster growth and higher stock prices.
After Immelt, 61, announced his departure on Monday, GE shares rose more than 3.5 percent to $28.94. GE named John Flannery as the new chairman and CEO. Flannery, 55, has worked in the company for 30 years, most recently running GE’s health care division.
Merger talks escalated
Immelt played a key role in negotiating the merger with Baker Hughes. GE Oil & Gas CEO Lorenzo Simonelli had been working to persuade Baker CEO Martin Craighead of the value of a merger, but it wasn’t until Immelt attended a meeting that talks escalated. They ultimately agreed that GE would pay $7.4 billion in cash to acquire 62.5 percent of Baker Hughes.
Unlike the ill-fated merger with Houston rival Halliburton, Baker Hughes’ businesses have little overlap with GE Oil and Gas, which made regulatory approval easier. The European Union’s regulatory body signed off on the merger last month.
The U.S. Justice Department had only one condition in its approval, filed in federal court as a consent decree. GE must sell its Water & Process Technologies Business; it already has a buyer.
The merger combines two companies with different strengths, analysts said, allowing the merged firm to compete on both onshore shale fields and deep-water drilling rigs, while harnessing GE’s expertise in collecting and analyzing massive amounts of data from industrial operations. Baker Hughes shareholders will vote on the deal on June 30.
“Baker had some faults, real execution issues,” said Anderson, the Barclays analyst. “One thing GE can do — they’re very good at operations.”
In Texas, GE spent billions of dollars to buy into the energy industry and bulk up its Oil & Gas division. Immelt started with GE’s deep-water business, inking deals worth more than $1 billion for Houston-based Hydril and Vetco Gray as well as U.K.-based Wellstream. Then it bought into the onshore shale revolution, picking up Lufkin Industries for $3.3 billion — a year before oil prices began to crash.
Finally, last year, GE landed the merger with Baker Hughes.
A new Baker Hughes
In a statement, Baker Hughes hailed the Justice Department’s approval as “significant progress toward creating an oil and gas productivity leader positioned to deliver value for customers, employees and shareholders.”
Baker Hughes struggled through the oil bust, and its failed merger with Halliburton left it further weakened — even with the $3.5 billion breakup fee Halliburton paid. Not long afterward, company officials began talks with GE over the potential merger.
Simonelli will serve as CEO of the new Baker Hughes, Craighead as vice chairman. GE, which had revenues of $123.7 billion in 2016, will add new resources to a company that had become a distant number three in the sector.
Once the deal closes, the new Bakers Hughes will surpass Halliburton and trail only global energy services leader Schlumberger. Some analysts are skeptical of the merger, arguing that integration of the disparate operations will be harder than the companies imagine.
“GE clearly brings a lot to the space,” said Robert MacKenzie, an analyst at New Orleans investment bank Iberia Capital Partners. “But I think they have a lot of work to do.”