Just a few months removed from Baker Hughes attempt to merge with Halliburton, Baker Hughes is making another deal to be acquired – this time with General Electric. How is this deal different than the Halliburton deal? And why are the companies making an oil play now?
Will The Merging of General Electric and Baker Hughes Succeed?
General Electric is making a big bet on oil. A $7.4 billion bet, to be exact. That’s how much GE is paying to merge with Baker Hughes, Inc. in a move which would create the second largest oil service provider in the country, with $32 billion in annual revenue. While oil prices may still be recovering from a long slump, the move makes a lot of sense for a lot of reasons. And where Halliburton failed in its attempts to merge with Baker Hughes, General Electric’s deal should pass by mid-2017.
Halliburton tried to acquire Baker Hughes since 2014, in a deal which antitrust regulators put a stop to in May of 2016. That deal would have merged the world’s number two and number three oil service providers into one, essentially creating a duopoly between that new company and Schlumberger Limited, the number one oil service provider. However, while a merger between GE and Baker Hughes would create a major competitor, it would be a third major competitor, rather than combining two of the top three competitors in the oil industry. That alone is reason enough for the deal to pass.
Another reason for the merger to go through, and why the merger makes sense, is that the two companies currently offer different services, which also happen to be complementary. GE is the world’s largest oilfield equipment maker, supplying companies with pumps, compressors, and data processing services. Baker Hughes is adept at fracking and drilling new wells. By combining the two, GE should be able to significantly boost productivity not only in oil production, but in data, operations, and logistics. This is a clear advantage over a merger between Baker Hughes and Halliburton, whose almost identical services were a major reason why their merger was denied. The merger should pass by mid-2017, with GE owning 62.5 percent of the new publicly traded company.
This merger is an interesting one as oil prices are low and other companies are merging with bets on renewable energy. Tesla Motors is merging with Panasonic, while rival Sunrun is merging with LG Chem. Both mergers are meant to create self-sustaining homes, capable of powering a home as well as fueling electric cars, driving energy prices down overall.
Want to hear more news about this mega deal? Check this video from CNBC here.
But GE and Baker Hughes makes too much sense to fail. As of this writing, both General Electric Company (GE) and Baker Hughes, Inc. (BHI) shares are down, most likely due to the complicated structure of the deal. However, expect shares of both companies to go UP, especially as the deal passes antitrust hurdles.
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