GE Discussing Baker Hughes Partnership as Oil Slump Endures

Oct. 28, 2016
GE has expanded its oil and gas business in recent years through more than $10 billion in acquisitions, making it the company’s fourth-largest division.

General Electric Co. (IW 500/6) is holding discussions with Baker Hughes Inc. on potential partnerships that would bring together an industrial equipment behemoth with one of the oil industry’s largest service providers.

The talks are ongoing but the options under consideration don’t include “an outright purchase,” according to GE spokeswoman Deirdre Latour, following a report by the Wall Street Journal saying the company was in talks to buy Baker Hughes.

Oilfield contractors are increasingly partnering in an effort to cut costs and offer oil explorers more streamlined and comprehensive options for the services and gear needed to suck crude out of the ground. Service providers and equipment makers have been asked by their customers during the downturn to find ways to make the process more efficient.

A Baker Hughes-GE partnership would compete more effectively with the world’s top oilfield-services provider, Schlumberger Ltd., Richard Spears, vice president at the Tulsa-based oilfield consultant Spears & Associates, said Thursday in a phone interview. Schlumberger recently bought equipment maker Cameron International.

Baker Hughes jumped as much as 19% in after-hours trading in New York following the Wall Street Journal report, which cited people familiar with the matter. The shares pared gains after GE’s statement, and were up 7.1% as of 9:13 p.m. GE was little changed.

Melanie Kania, a spokeswoman for Baker Hughes, declined to comment.

Baker Talks with Halliburton Faltered

Baker Hughes terminated plans to be acquired by Halliburton Co. earlier this year after failing to win antitrust approval from regulators around the world. GE acknowledged that it had held talks about possibly bidding for parts of Baker Hughes that Halliburton was seeking to unload for the deal.

GE has expanded its oil and gas business in recent years through more than $10 billion in acquisitions, making it the company’s fourth-largest division. Yet, within the world of oilfield services and equipment manufacturing, the Boston-based company ranked 11th, according to April data from Spears & Associates.

Sales in GE’s oil and gas unit fell 25% in the third quarter, the most in the company’s industrial divisions. Still, executives have said the company is open to deals and would like to be opportunistic during the oil market slump. The company has said it could add as much as $20 billion of new debt to support growth efforts.

A partnership between GE and Baker Hughes “would have strategic logic, given there would be considerable complementarity of product offerings,” Julian Mitchell, an analyst with Credit Suisse Group AG, said Thursday in a note. A full acquisition may not make sense, he said, due to the size of such a deal and questions over whether Baker Hughes shareholders would support it.

The oil-services and equipment sectors have been among the hardest hit in the two-year downturn, contributing the largest chunk of the more than 350,000 jobs slashed globally.

At least 100 North American oilfield services companies have gone bankrupt in 2015 and 2016 as energy prices slid, according to a tally by law firm Haynes & Boone. Exploration customers were forced to cut an unprecedented amount of spending over the past two years to cope with the oil industry’s worst financial crisis in a generation.

By Richard Clough and David Wethe

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