New Delhi:
US diversified conglomerate General Electric and Houston based oilfield giant Baker Hughes are set to merge their oil and gas operations (O&G) to create a USD 32 billion oil business, anticipating a rebound for an industry mired by ahistoric slump in crude prices.
The new company will be one of the industry's largest players, bringing together a portfolio of capabilities spanning oilfield services, equipment manufacturing and technology.
Boston based GE will own 62.5 per cent of the merged entity, which will be publicly traded, the companies said on Tuesday. The deal is expected to close in the middle of next year.
The transaction is subject to approval by regulators andBaker Hughes shareholders, as well as other customary closingconditions. GE will contribute USD 7.4 billion to fund a special dividend of USD 17.50 a share to Baker Hughes stockholders.
GE rose 0.9 per cent to USD 29.49 at 10:26 a.m. in NewYork, while Baker Hughes fell 0.5 per cent to USD 58.82. GEhad fallen 6.2 per cent this year through Friday, comparedwith a 4 per cent gain in the Standard & Poor's 500 Index.
Baker Hughes rose 28 per cent over the same period. Lorenzo Simonelli, CEO of GE Oil & Gas, will serve in the same role at the "new Baker Hughes," while Immelt will bechairman and Baker Hughes CEO Martin Craighead will be vicechairman, according to the statement.
The company will have dual headquarters in Houston and London. The transaction will add 4 cents a share to GE's earningsin 2018 and 8 cents by 2020, GE said. The company anticipates "runrate synergies," or savingsthrough cost cuts, of USD 1.6 billion by 2020. The new company has growth opportunities including through increased adoption of new technology such as GE's Predixoperating system, Immelt said.
Moody's Investors Service, S&P Global Ratings and Fitch Ratings affirmed GE's credit level following the announcementand said the outlook is stable. "Fitch expects global exploration and production spendingand activity to increase moderately in 2017 with a more robust growth profile in 2018," the ratings company said in astatement. By joining forces, Baker Hughes and GE are betting theycan compete more effectively with the world's topoilfield-services provider, Schlumberger Ltd., which recently bought equipment-maker Cameron International.
Oilfield contractors are increasingly forming partnerships to help cut costs and expand their offerings and distribution channels amid the downturn.
The oil-services and equipment sectors have been among the hardest hit in the industry's two-year downturn, contributing the largest chunk of the more than 350,000 jobs slashed globally. At least 100 North American oilfield-service companies havegone bankrupt in 2015 and 2016 as energy prices slid, according to a tally by law firm Haynes & Boone.
