GE to merge oil unit with Baker Hughes to create service giant

Mon Oct 31, 2016 5:40pm EDT
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By Ernest Scheyder and Swetha Gopinath

(Reuters) - General Electric Co (GE.N: Quote) said on Monday it would merge its oil and gas business with Baker Hughes Inc (BHI.N: Quote), 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: Quote), which tried and failed to buy Baker until the deal collapsed last May, and also compete heavily with Schlumberger NV (SLB.N: Quote), 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.   Continued...

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