Merger Between Baker Hughes And GE Oil & Gas Closes
The merger of General Electric’s oil and gas unit with Baker Hughes has been completed resulting in the second largest oilfield services group in the world. Schlumberger is currently the world’s largest oilfield services group.
The deal was agreed to in October 2016 with the aim of delivering cost savings amounting to $1.2 billion per year in the next three years as well as annual revenue synergies amounting to $400 million in three years as well. Baker Hughes ceased trading in its previous form on Monday after the closure of the New York market and resumed trading in its new form on Wednesday.
To get a 62.5% stake in the merged group, General Electric contributed its already existing oilfield services unit besides also offering a payment of $7.4 billion to top up. The remaining stake of 37.5% will float on the NYSE. Current shareholders of Baker Hughes will get a cash dividend amounting to $17.50 and this was paid on Wednesday.
The combined organization is expected to generate revenues totaling $23 billion. It will possess services and equipment capabilities throughout the chain including upstream exploration and downstream refining. The combined entity will strongly emphasize big data and digital technology and will harness the digital capabilities of General Electric to reduce risks and increase efficiency in all stages of the value chain. As a GE company, the new entity will not only have access to the research and development resources of its parent company but will also have at its disposal GE’s software and analytics technology known as Predix.
Lorenzo Simonelli, the current chief executive officer of General Electric Oil & Gas will head the new entity which will be dually headquartered in Houston, Texas and London, U.K. Employees at the new entity are expected to number approximately 70,000. Besides Simonelli, there will be 14 other senior executives on the new company’s leadership team. Just about 5 of those senior executives will be drawn from Baker Hughes with the majority hailing from General Electric.
When the deal was announced, it was expected that the price of oil would be $60 a barrel by 2019 but the situation is not clear now since a glut in crude supplies is still being experienced. Executives at the new entity, however, remain optimistic.
“The crystal ball for all of us is cloudy. But we know energy requirements are still going to increase, globally. The fundamentals are there for energy,” said Simonelli.