The Strategist

General Electric to merge its oil and gas division with Baker Hughes

10/28/2016 - 15:55

According to The Wall Street Journal, General Electric corporation (GE) is negotiating with the world’s third-largest oilfield services company Baker Hughes to unite it with its oil and gas business. Experts believe that after merger will allow GE to allocate this division into a separate company. GE itself acknowledged talks with Baker Hughes, but said that it will be not a direct purchase.

The.Comedian via flickr
The.Comedian via flickr
On Thursday, The Wall Street Journal reported, citing sources familiar with the situation, that American corporation General Electric is in talks to merge its oil and gas business with oil services company Baker Hughes. Sources of The Wall Street Journal reported no negotiation details and pointed out that the talks that they aren’t destined to result in an agreement. GE’s statement, issued after the information about the negotiations was released, said: "We are in talks with Baker Hughes about a possible partnership. Although we have not yet chosen any of the options, none of them stipulates direct purchase".  

The deal could reach more than $ 20 billion. After its completion, GE after can spin off the new oil service division into a separate company to be traded on a stock exchange. Thus, GE itself aims to distance from the power sector, which has recently suffered due to low prices for fossil raw materials. According to experts, the disposition of the company’s oilfield services division may become a model for GE to estrange other non-core assets from the core company. Last year, one of GE investors Trian Fund Management Fund, which owns $ 2.5 billion in the company’s shares, urged the company’s management to focus on three main areas: energy turbines, jet engines and medical equipment.

Baker Hughes is the third largest oilfield services company after Schlumberger and Halliburton. Its market capitalization (based on price of its shares on Thursday) is $ 23 billion, the company's revenue in 2015 amounted to $ 15.7 billion. In 2014, Baker Hughes agreed to a merger with Halliburton, amount of the transaction was to be $ 35 billion. Later, however, the Ministry of US Justice Department blocked the deal. Market cap of GE is $ 259,000,000,000, last year's proceeds of its oil and gas division were $ 16.5 billion. To create this division, the company has made several transactions totaling $ 14 billion since 2007. Earlier, GE reported that revenues of its oil and gas unit may be reduced by 30%, as the company has planned to reduce spending on the unit for $ 1 billion in the next two years.

After the information about the possible merger was released, shares of Baker Hughes rose 7%.