General Electric Company (NYSE:GE) agreed to combine its oil and gas business with Baker Hughes Inc., in a deal that will create a new publicly traded entity with more than $32 billion in revenue. The new company will be publicly traded on the New York Stock Exchange. GE will own a 62.5 percent state in the combined company while 37.5 percent will be owned by Baker Hughes shareholders, the companies said Monday in a statement.
The new company “will have scale, diversification and a great team,” GE Chief Executive Officer Jeffrey Immelt said on a conference call. “We can weather the cycle in the short term and will be very well-positioned to lead the industry going forward.” Under the deal, GE will also contribute $7.4 billion to pay a special one-time cash dividend of $17.50 a share to Baker Hughes shareholders.
Suffering from the low oil price, at least 100 North American oilfield-service companies have gone bankrupt in 2015 and 2016, according to Bloomberg. The third-quarter sales fell 25 percent in GE’s oil and gas business and the company said operating profit will be down by 30 percent for the year.
GE expected the deal will add 4 cents a share to the company’s earnings in 2018 and 8 cents by 2020. The company also anticipates $1.6 billion in annual “synergies” by 2020, including $1.2 billion in costs and $400 million in revenue opportunities. GE share rose 0.34 percent to $29.32 in the early trading, while Baker Hughes shares dropped 2.54 percent to $57.64.
"This transaction creates an industry leader, one that is ideally positioned to grow in any market," GE CEO Jeff Immelt said in a statement. "Oil and gas customers demand more productive solutions. This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes.