GE and Baker Hughes have entered into an agreement to combine GE’s oil and gas business (GE Oil & Gas) with Baker Hughes to create an oilfield technology provider with a unique mix of service and equipment capabilities. The “new” Baker Hughes will be a leading equipment, technology and services provider in the oil and gas industry with $32 billion of combined revenue and operations in more than 120 countries.

Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, at the closing of the transaction Baker Hughes shareholders will receive a special, one-time cash dividend of $17.50 per share and 37.5% of the new company. GE will own 62.5% of the company The transaction is expected to close in mid-2017.

“This transaction creates an industry leader, one that is ideally positioned to grow in any market. Oil & gas customers demand more productive solutions. This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes,” said Jeff Immelt, GE chairman and CEO. “As we built the GE Oil & Gas business, I have always been impressed by the respect our customers have for Baker Hughes.

GE Oil & Gas is a key GE business, one that fully leverages the GE Store. As we go forward, this transaction accelerates our capability to extend the digital framework to the oil and gas industry. An oilfield service platform is essential to deliver digitally enabled offerings to our customers. We expect Predix to become an industry standard and synonymous with improved customer outcomes. GE investors will benefit through ownership of a stronger business with substantial synergies and an improved competitive position. The transaction is expected to add approximately $.04 to GE EPS in 2018, $.08 by 2020.”

Martin Craighead chairman and CEO at Baker Hughes said, “This compelling combination brings together best-in-class oilfield equipment manufacturing and services, and digital technology offerings for the benefit of all customers and stakeholders.”

Some compelling strategic and financial benefits of the transaction are:

• The company will combine the digital solutions, manufacturing expertise and technology from the GE Store and the outstanding track record of success Baker Hughes has in the oilfield services sector. With combined revenue of more than $32 billion, the product portfolio of GE Oil & Gas and Baker Hughes in drilling, completions, production and midstream/downstream equipment and services will create the second largest player in the oilfield equipment and services industry. The combined company will be moving beyond oilfield services and into oil and gas productivity solutions.
• The combination produces substantial synergies through combined efficiency and growth. The companies expect to generate total Run rate synergies of $1.6 billion by 2020, which has a net present value of $14 billion. While this is primarily driven by cost out, we believe that the new company is positioned for growth as the industry rebounds.
• The combination positioned creates value for Baker Hughes and GE shareholders, The diversified portfolio can deliver through the oil and gas cycle. There is a large pool of synergies that will improve operating margins and drive organic growth. The New Baker Hughes has a strong balance sheet. The transaction is expected to be accretive to GE’s earnings per share
  by $.04 by 2018 and $.08 by 2020. This is another step in creating the premium digital industrial company.
• The“New Baker Hughes is expected to be the partner and employer of choice for the industry. Both companies’ employees will benefit significantly from being part of a larger, more diversified company.

The New Baker Hughes will have dual headquarters in Houston and London.

Centerview Partners is serving as financial advisor to GE on the transaction. Morgan Stanley is also acting as financial advisor. Shearman & Sterling is acting as legal advisor to GE. Goldman Sachs is serving as financial advisor to Baker Hughes. Davis Polk is acting as legal advisor to Baker Hughes.