(Reuters) - General Electric Co (GE.N) said on Monday it would merge its oil and gas business with Baker Hughes Inc BHI.N, creating the world’s second-largest oilfield services provider as competition heats up to supply more-efficient products and services to the energy industry after several years of low crude prices.

The deal to create a company with $32 billion in annual revenue will combine GE’s strengths in making equipment long-prized by oil producers with Baker Hughes’s expertise in drilling and fracking new wells.

Shares of Baker Hughes were down nearly 7 percent, a drop that executives said likely was due to the deal’s complicated structure.

“This is a good deal for all of the investors,” said Lorenzo Simonelli, head of GE’s oil and gas business who will lead the new entity, to be called “Baker Hughes, a GE company.”

GE is already the world’s largest oilfield equipment maker, supplying blowout preventers, pumps and compressors used in exploration and production. GE also has invested heavily in large data processing services just as the oil industry eyes its potential to boost oil recovery.

Baker Hughes, by contrast, is seen as one of the world leaders in horizontal drilling, chemicals used to frack and other services key to oil production.

The new company will vault Baker Hughes’s market share ahead of rival Halliburton Co (HAL.N), which tried and failed to buy Baker until the deal collapsed last May, and also compete heavily with Schlumberger NV (SLB.N), the world’s largest oilfield service provider, for customers.

Simonelli called Baker CEO Martin Craighead after the Halliburton deal collapsed, seeking some kind of business combination, with negotiations evolving over time to Monday’s announcement.

“Neither Lorenzo (Simonelli) or I needed to do this. We both followed our fiduciary responsibility,” Craighead said in an interview.

Related Coverage Oilfield services shakeup in cards after GE-Baker Hughes deal

GE will own 62.5 percent of the new publicly-traded company. The deal is expected to close in mid-2017.

GE will have to pay $1.3 billion to Baker Hughes if the deal does collapse in what would be yet another windfall for Baker Hughes after Halliburton was forced to pay it $3.5 billion earlier this year when those companies’ merger collapsed.

For graphic on GE and Baker Huges merger click tmsnrt.rs/2e5Y3xa

“We don’t anticipate anything like what we’ve encountered before happening again,” Craighead said, stressing he expects the GE tie-up to be blessed by regulators.

GE and Baker Hughes will reach out to the Justice Department and European antitrust enforcers on Monday, according to a source close to the company. GE will argue to antitrust enforcers - who stopped the deal between Halliburton and Baker Hughes just months ago - that their deal is complementary, and that they are committed to any remedy needed to win approval, the source said.

A small part of GE’s business is selling equipment to Baker Hughes’ competitors and it will continue those sales, the source said.

All of GE’s oil and gas business, which generated roughly 14 percent of GE’s revenue last year, will go into the new company, leaving no energy units behind in its former parent, Simonelli said.

The “best performers” from the existing GE and Baker Hughes will form new management teams, he added, declining to comment on potential layoffs.

Analysts said there was little overlap between the businesses that would worry regulators.

The logo of U.S. conglomerate General Electric is pictured at the company's site in Belfort, April 27, 2014. REUTERS/Vincent Kessler/File Photo

“I don’t see any overlaps, significant overlaps,” said Tom Seng, a veteran of the energy business who teaches at the University of Tulsa.

OIL NEAR $50

The deal comes at a time when North American oil and gas producers are putting rigs back to work after a near-freeze in activity caused by a slump in oil prices that began mid-2014.

But the deal is predicated on a forecast for oil prices to rise to $60 per barrel by 2019, GE Chief Executive Jeff Immelt told investors Monday.

“This is a very compelling time for the deal,” Immelt said, noting he expects $1.6 billion in annual cost savings by 2020.

Global oil prices LCOc1 have risen by a third this year to near $50 a barrel.

Craighead, who will become vice chairman of the new company, echoed Immelt’s confidence.

“We see growth under any market environment,” Craighead said in an interview. “Our customers continue to spend massive amounts of money.”

The industrywide push for pumping more oil and natural gas at cheaper costs should only accelerate that trend, he said.

Activist investor Nelson Peltz, whose Trian Fund Management owns about 0.8 percent of GE as of June 30, told CNBC the new company would be able to go “nose-to-nose” with Schlumberger.

Slideshow (2 Images)

Shareholders of Baker Hughes, which had a market value of about $26 billion as of Friday, will get a special one-time cash dividend from GE of $17.50 per share - or $7.4 billion - after the deal closes.

The new company, to be listed on the New York Stock Exchange, will have dual headquarters in Houston and London.

Baker Hughes shares rose as much as 5 percent in morning trade before reversing course to trade down nearly 8 percent at $54.60. Shares of GE slipped 0.1 percent to $29.18.

Centerview Partners and Morgan Stanley are advising GE, while Shearman & Sterling is its legal adviser. Goldman Sachs & Co is Baker Hughes’s financial adviser, with Davis Polk acting as legal adviser.</s>General Electric Co, banking on a recovery in oil prices, said on Monday it would merge its oil and gas business with No. 3 oilfield services provider Baker Hughes Inc.

GE will own 62.5 per cent of the new publicly traded company, which will have combined revenue of $32-billion, while Baker Hughes shareholders will own 37.5 per cent.

Shareholders of Baker Hughes, which had a market value of about $26-billion as of Friday, will get a special one-time cash dividend from GE of $17.50 per share – or a total of $7.4-billion – after the deal closes.

Baker Hughes had planned to combine with bigger rival Halliburton Co, but the transaction fell through in May due to opposition from regulators. That deal was valued at $34.6-billion when it was announced in November 2014.

The combination of GE Oil & Gas and Baker Hughes will create the second-largest player in the oilfield services industry in terms of revenue after Schlumberger.

The GE-Baker Hughes deal comes at a time when North American oil and gas producers are putting rigs back to work after a near freeze in activity caused by a slump in oil prices that began mid-2014. Global oil prices have risen by a third this year to trade near $50 a barrel.

GE said last week it believed the oil market had bottomed, but that demand for the gear the company makes would take longer to recover, probably until after the first half of next year.

GE’s oil and gas business, which makes blowout preventers, pumps and compressors used in exploration and production, accounted for 14 per cent of the company’s total revenue in 2015.

“This transaction creates an industry leader, one that is ideally positioned to grow in any market,” GE Chief Executive 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.”

Lorenzo Simonelli, chief executive and president of GE Oil & Gas, will be CEO of the new company. Immelt will be chairman and Baker Hughes CEO Martin Craighead will be vice chairman.

The companies said on Monday the deal was expected to add 4 cents to GE’s earnings per share by 2018 and 8 cents by 2020.

GE and Baker Hughes had said on Thursday they were in talks over potential partnerships. The Wall Street Journal first reported that the companies were in discussions.

Baker Hughes shares were up 12 per cent at $66.20 in premarket trading on Monday. The stock had closed at $54.55 on Thursday ahead of the Journal report.

GE’s shares were up 0.3 per cent at $29.32 in light trading.</s>General Electric Co., banking on a recovery in oil prices, said on Monday it would merge its oil and gas business with No. 3 oilfield services provider Baker Hughes Inc.

GE will own 62.5 percent of the new company, which will have combined revenue of $32 billion, while Baker Hughes shareholders will own 37.5 percent.

Shareholders of Baker Hughes, which had a market value of about $26 billion as of Friday, will get a special one-time cash dividend of $17.50 per share after the deal closes.

The deal comes after Baker Hughes’s planned merger with bigger rival Halliburton Co. fell through in May due to opposition from regulators. That deal was valued at $34.6 billion when it was announced in November 2014.

GE and Baker Hughes said last week they were in talks over potential partnerships but did not disclose details.

The companies said on Monday the deal was expected to add 4 cents to GE’s earnings per share by 2018 and 8 cents by 2020.

GE scaled back expectations for its full-year revenue and profit earlier in October as low oil prices hurt sales of the company’s oil and gas infrastructure equipment.

The Wall Street Journal first reported on Thursday that GE and Baker Hughes were in talks.

Baker Hughes shares were up 5.7 percent at $62.50 in premarket trading on Monday. GE’s shares were up 0.9 percent at $29.48 in light trading.

Tags: Baker Hughes Inc., energy, General Electric Co., oil and gas</s>General Electric Co ( ), banking on a recovery in oil prices, said on Monday it would merge its oil and gas business with No. 3 oilfield services provider Baker Hughes Inc ( ).

GE will own 62.5 percent of the new company, which will have combined revenue of $32 billion, while Baker Hughes shareholders will own 37.5 percent.

Baker Hughes shareholders will get a special one-time cash dividend of $17.50 per share after the deal closes.</s>General Electric is betting big on oil and gas.

The company announced Monday that it will merge its oil and gas business into Baker Hughes, a major player in the oilfield services industry.

Oilfield services firms help companies that produce oil and gas, providing technology and tools that explore and drill.

All oil-related businesses have been hurt in the past two years by the plunge in energy prices, but oilfield services has been particularly slammed. As prices dropped, companies cut back on the exploration and drilling of new wells.

Rigs that Baker Hughes owns have dropped by more than 2,000 worldwide in the past two years, a 57% decline. And the company cut 19,000 jobs just last year -- 10,000 of which were in the United States.

Related: Cheap oil has killed nearly 200,000 U.S. jobs

The pullback in the industry prompted Baker Hughes to agree to a purchase by rival Halliburton (HAL) in November 2014. But that deal was scrapped after the U.S. Justice Department sued to block the merger because of antitrust concerns.

Despite the difficulties in the oil patch, the combined businesses of GE Oil and Gas and Baker Hughes still had annual revenue of more than $30 billion. They said the deal will allow them to cut costs by $1.6 billion a year within four years.

GE and Baker Hughes will create a new company that GE will control, although Baker Hughes shareholders will own a 37.5% stake.

The Baker Hughes shareholders will also get a special dividend of $17.50 a share, paid for by $7.4 billion in cash from GE.

Shares of Baker Hughes (BHI) jumped 7% in premarket trading on the news. That's on top of an 8% gain in trading Friday on rumors that a deal was near. Shares of GE (GE) were also slightly higher in premarket trading.

The deal will have to be approved by regulators before the companies can close the deal.

Both companies have histories going back more than a century that include some famous men in U.S. history.

The Hughes in name Baker Hughes refers to Howard Hughes Sr., father of the eccentric American business tycoon Howard Hughes. In 1909, Hughes Sr. introduced a drill bit that dramatically improved the rotary drilling process.

Hughes Tool merged with oilfield services company Baker International in 1987. GE was created in 1890 as Edison General Electric Co. by Thomas Edison soon after he received patents for the first light bulb.</s>General Electric said on Monday it would merge its oil and gas business with Baker Hughes, creating the world’s second-largest oilfield services provider as industry competition heats up to supply more-efficient products and services to the energy industry.

The deal to create a company with $32 billion in annual revenue will combine GE’s strengths in making equipment long-prized by oil producers with Baker Hughes’s expertise in drilling and fracking new wells.

GE is already the world’s largest oilfield equipment maker, supplying blowout preventers, pumps and compressors used in exploration and production. GE also has invested heavily in large data processing services just as the oil industry eyes its potential to boost oil recovery.

Baker Hughes, by contrast, is seen as one of the world leaders in horizontal drilling, chemicals used to frack and other services key to oil production.

“Both of them are quite complimentary in terms of their skills set,” GE chief executive Jeff Immelt said on CNBC on Monday. “Our oil gas customers are going to want more productivity solutions.”

Still, shares of Baker Hughes were down nearly 3 per cent, a drop that Mr Immelt and Baker chief executive Martin Craighead said likely was due to the deal’s complicated structure.

The new company will vault Baker Hughes’s market share ahead of rival Halliburton, which tried and failed to buy Baker until the deal collapsed last May, and also compete heavily with Schlumberger, the world’s largest oilfield service provider, for customers.

GE will own 62.5 per cent of the new publicly traded company. The deal is expected to close in mid 2017.

Analysts said there was little overlap between the businesses of GE and Baker Hughes that would worry regulators.

GE and Baker Hughes will talk to the Justice Department and European antitrust enforcers on Monday, according to a source close to the company. They have not yet determined how many jurisdictions they will need to file in.

GE will argue to antitrust enforcers – who stopped the deal between Halliburton and Baker Hughes just months ago – that their deal is complementary, and that they are committed to any remedy needed to win deal approval, the source said.

The deal comes at a time when North American oil and gas producers are putting rigs back to work after a near-freeze in activity caused by a slump in oil prices that began mid-2014.

But the deal is predicated on a forecast for oil prices to rise to $60 per barrel by 2019, Mr Immelt told investors on Monday morning.

“This is a very compelling time for the deal,” Immelt said, noting he expects $1.6 billion in annual cost savings by 2020.

Global oil prices have risen by a third this year to trade near $50 a barrel. – Reuters</s>General Electric is to combine its oil and gas business with Baker Hughes, the oilfield services group, to create a global heavyweight in oilfield technology with combined annual revenues of around $32bn and operations in more than 120 countries.

News had broken before the weekend that GE was discussing potential partnerships – but not a full takeover – with Baker Hughes.

In a statement on Monday the two companies said Baker Hughes shareholders will a receive a special one-off cash dividend of $17.50 a share and will own 37.5 per cent of the new company. GE will own the remaining 62.5 per cent of the company, which will have dual headquarters, in Houston Texas as well as London.

GE’s chairman and chief executive, Jeff Immelt, will serve as chairman of the enlarged company’s board and Lorenzo Simonelli, president and chief executive of GE Oil & Gas will be chief executive.

The transaction is expected to lead to synergies of $1.6bn by 2020, which will predominantly be driven by cost-cuts but the statement added:

This transaction creates an industry leader, one that is ideally positioned to grow in any market. Oil & gas customers demand more productive solutions. This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes.

The deal is expected to close in the middle of next year and comes after Halliburton failed to buy Baker Hughes earlier this year, following objections from the US Department of Justice.</s>NEW YORK — General Electric and Baker Hughes are combining their oil and gas businesses to create a powerful player in an energy sector buffeted by years of weak prices.

Under the deal announced Monday, General Electric Co. will own 62.5 percent of the new company and Baker Hughes Inc., which provides drilling services for oil and gas companies, will own the rest. Baker Hughes shareholders will receive a one-time cash dividend of $17.50 per share.

The boards of both companies have approved the deal, which is expected to close mid-2017. It still needs approval from Baker Hughes shareholders.

The new business will have dual headquarters in Houston and London.

Shares of Baker Hughes Inc. are up more than 6 percent before the opening bell, while GE’s stock is up slightly.</s>Baker Hughes got knocked to the mat pretty hard when its planned merger with Halliburton — a longtime rival in the oil field services industry — fell apart in the face of U.S. Justice Department antitrust qualms earlier this year. But the Houston-based oil field services company is once again reportedly preparing to combine forces with General Electric's oil division, according to various reports.

The news isn't a surprise by any stretch of the imagination. There have been rumblings that GE might step up as the new suitor ever since the justice department came out against the original proposal to combine Halliburton and Baker Hughes in April.

The feds arguably had reason to look askance at the pitch to allow the second- and third-largest oilfield service companies in the United States to become one mammoth company, but they took their time coming to this conclusion. Halliburton announced the $34 billion agreement in November 2014, but the two companies then spent more than two years spinning their wheels as they waited for Department of Justice approval that was never came.

When the deal with Halliburton was in the works and still seemed like a real possibility, Baker Hughes, as the company being acquired, made room for Halliburton by laying off employees and selling otherwise profitable businesses in anticipation of a merger that was ultimately doomed. Once that agreement officially fell apart, Baker Hughes was left in a tricky situation, since it now had gaps in its own company structure at the same time that oil prices were still slumping.

Thus, GE entered the scene with a long history in the oil industry — although it hasn't been as much of a focus for the Boston-based giant in recent years — and ready cash to put on the table.

Now, it looks like these two have found a way to make a deal. In exchange for about $30 billion, GE will expand its oil business by teaming up with Baker Hughes, the third-largest oil field services company in the United States. If the deal goes through, the new company would bring together a slew of capabilities in everything from oilfield services, equipment manufacturing to technology, according to a GE statement.

“Baker Hughes obviously has been vulnerable since, but really this is a strategic decision by GE,” Ed Hirs, an energy economist at University of Houston, says. “GE has forever said that its success is in being number one or two in the markets in which it plays. It was not at the top of the market in this industry before, but with this combination with Baker Hughes it will be.”

The thinking goes that by working together, the two companies will be able to compete with Schlumberger, and Halliburton, the two largest oilfield service companies in the United States, Reuters notes. But at the same time, this new entity may not offend the justice department's antitrust sensibilities the way the previous offer did.

For one thing, this merger makes sense based on the current state of the oil industry itself. Prices have finally rallied, giving some people enough hope believe the downturn is finally drawing to a close. But even if this proves to be the case, the oil industry has gone through a rough couple of years.

More than 100 oil field service companies in North America have declared bankruptcy in 2015 and 2016, while oil exploration companies were forced to slash millions in spending on exploration to help get them through the worst financial plunge the industry has seen in decades. More than 350,000 jobs were cut globally as the industry streamlined and worked to pare down costs enough to deal with the nosediving oil prices.

Once the deal is officially closed — it's expected to be inked sometime in the middle of next year — GE will end up owning about 62 percent of the new company. Meanwhile, Baker Hughes CEO Martin Craighead would be vice chairman while Lorenzo Simonelli, CEO of GE Oil & Gas, would have the same position at "the new Baker Hughes" according to GE head honcho Jeffrey Immelt. The new iteration of the company would have headquarters in both Houston and London.

However, it's looking like GE and Baker Hughes have a decent chance of pulling this merger off since the two companies don't overlap so much as complement each other, as Bloomberg observed. That should make the feds much more simpatico with this combo.

The DOJ should look more kindly on this merger, simply because the underlying businesses don't compete that much. "There's some synergy between GE and Baker Hughes, but they don't have any real overlap,” Hirs says. “Basically, by combining the two companies you're not increasing the concentration in the business lines, because the lines don't overlap. With the other deal you would have been removing a competitor but you're not doing that with this one.”

Since Baker Hughes has already been through this before, hopefully the company won't have to make any more cuts or alter itself too much to fit with GE.

And fingers crossed that the folks over at Baker Hughes insist on a if-this-falls-apart prenup like the $3.5 billion one they had with Halliburton. There's certainly no harm in hedging your bets, especially when you're betting companies, millions of dollars and, you know, people's jobs. It just makes sense.</s>The merger between GE and Baker Hughes' oil and gas businesses will create the world's No. 2 oilfield services provider. Fred Katayama reports.
General Electric says it plans to merge its oil and gas business with the large oilfield services provider Baker Hughes. This follows the demise of a merger plan between Baker Hughes and Halliburton.