In what is a bit of a surprise, GE and Baker Hughes announced an unprecedented merger. The deal structure alone is creative and unique. Unlike a traditional merger or acquisition, GE will contribute its oil-and-gas business and $7.4 billion in a special cash dividend to a new entity, which will be publicly traded with 62.5% owned by GE and 37.% owned by the existing Baker Hughes. Baker Hughes shareholders will get a onetime payment of $17.50 per share. 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.
But what makes the merger truly interesting is the type of company that will be created. In effect, GE will now control Baker Hughes, which will be the world’s second-largest oilfield services company, with revenue projected at $34 billion in 2020. Baker Hughes is traditionally a service company, whereas GE is an equipment manufacturer. While GE is selling the deal to investors by saying that the combined entities will be able to enact substantial cost savings through reduction of redundancies, some analysts doubt that given the different nature of the two businesses.