General Electric Co. (GE) has combined with Baker Hughes, Inc. to be the leader in oil and gas productivity. The combination also signals that consolidation is picking up in the energy sector due to long-term lower oil prices.
GE has announced in a press release that they will be combining their oil and gas business with Baker Hughes. Their combination would create a world-leading oilfield technology provider that has a unique mix of service and equipment capabilities.
GE said the new company would be a leader in the oil and gas productivity with $32 billion of combined revenue. The new Baker Hughes will be leading equipment technology and service provider in the oil and gas industry that operates in more than 120 countries.
"This transaction creates an industry leader, one that is ideally positioned to grow in any market," GE Chairman and CEO Jeff Immelt said. "This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes."
GE will 62.5 percent of the new company while Baker Hughes will own 37.5 percent upon closing. GE will also contribute $7.5 billion to fund the $17.50 per share dividend to existing Baker Hughes shareholders.
Reuters reports that deals have been fitful in the oil industry with large companies such as Schlumberger and Technip buying smaller rivals. Crude oil prices have plummeted since 2014.
The size GE and Baker Hughes transaction and the timing led industry analysts to believe that companies have already adjusted to the lower oil price in their strategies. U.S. producers have also found ways to sustain output even at lower price levels.
Simmons & Co International Head of Global Energy Research William Herbert said that protagonists in the industry "are much more cautious about the slope and length of runway for the industry recovery going forward." He said that's why a series of combinations have sought scale.
GE and Baker Hughes combination to be the leader in oil and productivity is expected to be accretive to GE's 2018 earnings per share by approximately 0.4 percent. Synergies of $1.6 billion are expected to be realized by 2020.