GE, Baker Hughes reach deal to merge oil and gas businesses

GE, Baker Hughes reach deal to merge oil and gas businesses

By Dana Cimilluca , Dana Mattioli, and David Benoit

Combination creates a company with more than $32 billion in revenue

Bloomberg News/Landov
Baker Hughes and GE will merge their oil-and-gas units
General Electric Co. reached a deal to combine its oil-and-gas business with Baker Hughes Inc., creating an energy powerhouse that would give GE a cost-effective way to play any recovery in the industry.

GE GE, +2.06%  will contribute its oil-and-gas business and $7.4 billion in a special cash dividend to the new entity, which will have publicly traded shares and be 62.5% owned by GE and 37.5% owned by existing Baker Hughes BHI, +8.38%  shareholders.

The Wall Street Journal reported last week that the companies were in talks about a potential transaction.

A combination creates a company with more than $32 billion in revenue that could cut costs to better compete with rivals such as Schlumberger Ltd. SLB, -0.50%   to provide equipment and services to oil rigs and wells.

It would enable GE to benefit from an expected recovery in the industry without having to pay for a full acquisition of Baker Hughes. It would also enable the companies and their shareholders to benefit from cost and other synergies from putting the two businesses together.