GE merges oilfield unit with Baker Hughes

General Electric announced Monday the merger of its oilfield unit with Baker Hughes, betting the combined company will be better positioned for an oil industry rebound after the crude price crash.

GE will inject its huge oil and gas operations into Baker Hughes and take a 62.5 percent ownership of the combined company, which will retain the Baker Hughes brand name.

Baker shareholders will hold the rest of the company, and also will receive a special dividend of $17.50 a share, a payout by GE to consummate the deal totaling $7.4 billion.

But Baker shareholders appeared unimpressed the deal was a merger rather than a straightforward and richer buyout, and sold off the company's shares. Baker's stock fell 6.2 percent for the day to $55.46, though that still was above the $52 level where it was hovering Thursday before word of the deal leaked out.

GE shares lost 0.4 percent, with the falling price of crude also dragging on the broader energy sector Monday.

The two companies have about $32 billion in revenues and operations in 120 countries.

Baker Hughes brings to the deal a century of experience in support for oil and gas drillers, but has been hard hit by the pullback in exploration activity since the oil price crash in 2014. Baker is one of the leading companies for well drilling, completion and production.

GE is a leader in subsea drilling equipment and in turbines and compressors for liquefied natural gas operations and oil and gas processing systems.

It also is strong in digital systems for monitoring and inspection of oil and gas systems.

"As we go forward, this transaction accelerates our capability to extend the digital framework to the oil and gas industry," said GE chairman and chief executive Jeff Immelt.

The merger is expected to create a stronger services company for the oil and gas exploration and production sector in the face of tough competition with market leader Schlumberger and the number two player Halliburton, whose effort to take over Baker Hughes was blocked by opposition from US antitrust regulators earlier this year.

GE has expanded aggressively into the industry under Immelt, only to see growth slow after crude prices lost around 75 percent in 2014-2015 and large and small oil exploration and production companies slashed investment spending.

Immelt said the industry's recovery will remain slow over the next couple years.

"We can weather the cycle in the short term and will be very well positioned to lead the industry" when the pickup does come, he said.

The merger will create a company with 70,000 employees under the leadership of current GE Oil & Gas chief executive Lorenzo Simonelli.

Immelt adds to his portfolio the title of chairman of the new Baker Hughes, and current Baker Hughes chairman and chief executive Martin Craighead will be vice chair.

The two companies said that, when combined, they expect total revenues to rise to $34 billion by 2020, with $1.6 billion in annual savings from business synergies by then.

But analysts had their doubts given the limited overlap between the businesses, and with Baker already having trimmed its operations amid the oil market crash, that much savings will be squeezed out in this deal.

Analysts at Jeffries said the implied price for Baker in the deal was not particularly generous and calculated mainly based on the forecast $1.6 billion "synergy" savings.

That estimate "surprises," Jeffries said in a client note, compared to the only $500 million in savings projected from rival Schlumberger's takeover earlier this year of Cameron International.

"We are not as comfortable with the logic of 'BHI (Baker) can make it work if SLB (Schlumberger) can.'"