One step closer to final
After an investigation of possible competition concerns, the European Commission has cleared unconditionally the acquisition of Baker Hughes Incorporated (ticker: BHI) by General Electric Company (ticker: GE), the Commission announced today. The Commission concluded that the transaction would not adversely affect competition in the relevant markets.
On a number of specific markets the two companies sell competing products in Europe, and for other markets, GE is a supplier to Baker Hughes and its competitors, the EC concluded. GE’s oil and gas business provides manufacturing and technology solutions including subsea and drilling, rotating equipment, imaging and sensing. Baker Hughes is active in the provision of oilfield services on a global scale to oil and gas exploration and production companies, with a focus on the drilling and evaluation of wells as well as on the completion and production of wells.
The Commission investigated the following markets where the products of both companies compete:
- Onshore electrical submersible pumps used to pump fluids from the wells to the surface: no concerns were found because of GE’s limited position and the presence of a number of alternative competitors on the market.
- Offshore electrical submersible pumps: GE is not active and unlikely to enter the in the EEA market since its technology is not suitable to the North Sea environment.
- Chemicals used in the refining and petrochemicals industry: the companies’ activities are relatively complementary, and the merged entity will still face a number of competitors, including the market leader Nalco.
The investigation also looked at a number of markets where GE supplies Baker Hughes and its competitors:
- Sensors used in drilling and wireline applications: the Commission assessed whether GE, which manufactures and sells various types of these sensors, could harm Baker Hughes’ competitors by stopping, disturbing or otherwise restricting the supply of such sensors. Ultimately no concerns were identified since alternative suppliers of sensors are present and new entry is also possible.
The Commission found no competition concerns in relation to other markets where both are active – such as inline inspection services and permanent downhole gauges – or in relation to other vertical relationships.
The companies notified the Commission about the proposed transaction on April 20, 2017. Once a transaction is notified, the European Commission said it has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
The two companies announced the acquisition last fall, with GE labeling the resulting business “a new fullstream digital industrial services company,” it called “the ‘new’ Baker Hughes, a GE company.” The companies said the acquisition combines GE’s oil and gas technology, manufacturing and digital platform with Baker Hughes’ oilfield services offerings and technologies. GE will own 62.5% and Baker Hughes shareholders will own 37.5% of the “new” Baker Hughes.
When announcing the acquisition GE said it would contribute $7.4 billion to fund the $17.50 per share special dividend to existing Baker Hughes shareholders.
GE said it expects the acquisition of Baker Hughes to be accretive to GE 2018 earnings per share by approximately $.04 and it looked for synergies of $1.6 billion by 2020. Lorenzo Simonelli will be CEO, Jeff Immelt will be Chairman and Martin Craighead will be Vice Chairman of the “new” Baker Hughes board of directors, the companies said.
Smoother waters this time around
The GE – Baker Hughes deal came about in the wake of the failed $35 billion Halliburton – Baker Hughes merger. That merger was announced at the end of 2014 but went kaput after a couple of years of wrangling about details of the merger.
When Halliburton and Baker Hughes filed their proposed merger with the EC, their first proposal was rejected due to “insufficient data.” The two oilfield service giants then resubmitted a regulatory filing to the European Commission (EU) on November 27, 2015.
