General Electric Co. is nearing a roughly $ 30 billion 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 plans to contribute its oil-and-gas business and some cash to the new entity, which would have publicly traded shares and be majority-owned and controlled by GE, people familiar with the matter said. The transaction is to be announced Monday morning, the people said.
Exact terms of the deal couldn't be learned.
Baker Hughes on Friday confirmed it is in discussions with GE, a day after The Wall Street Journal reported the companies were in talks about a potential transaction. A GE spokeswoman said Thursday the company was pursuing "potential partnerships" with Baker Hughes, but GE wasn't exploring an "outright purchase."
A combination would create a company with more than $ 25 billion in revenue that could cut costs to better compete with rivals such as Schlumberger Ltd. 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.
After two brutal years, GE and some of its rivals in the oil-and-gas business have begun to see signs of hope. Crude prices, which plunged to $ 30 a barrel this year from more than $ 100 in 2014, have rebounded to around $ 50 recently.
GE provided glimmers of improvement from the third quarter, noting that U.S. rig and well counts remained down 50% from the previous year but had ticked upward in the previous three months. Still, orders for services were down across all of GE's oil business, the company said.
In recent public comments, GE has said it is still committed to the oil and gas unit for the long term, but GE said operating profit in the unit will be down by 30% for the year. GE is cutting more than $ 1 billion in costs out of the company over two years.
The companies' shares have reacted well to the possibility of a deal. GE's shares ended 2.1% higher at $ 29.22 on Friday, while Baker Hughes shot up 8.4% to close at $ 59.12.
The deal would be the latest blockbuster tie-up to be announced in recent days, after AT&T Inc. agreed to buy Time Warner Inc. for $ 85 billion and Qualcomm Inc. agreed to buy NXP Semiconductors NV for $ 39 billion. Other large deals are in the works including a potential combination of business-telephone companies CenturyLink Inc. and Level 3 Communications Inc.
The recent speedup in what has already been a strong year for mergers and acquisitions defies conventional wisdom, coming less than two weeks before the presidential election. The fact that companies are inking mergers at a breakneck pace without knowing who the next president will be shows how strong the imperative to consolidate across industries is, bankers say.
There is no guarantee a GE-Baker Hughes deal will be completed. The last merger agreement Baker Hughes entered into—a $ 35 billion proposed union with Halliburton Co.—was rejected by anti-trust regulators this year amid a tough environment for deals in Washington.
Before Baker Hughes and Halliburton had to abandon their merger plans, the companies held talks with GE to sell a package of assets valued at more than $ 7 billion to help win regulatory approval.
Houston-based Baker Hughes is one of the largest oil-field-services companies in the world by revenue. Such companies help energy producers, from Texas wildcatters to national oil companies, find and extract oil-and-gas deposits by selling them equipment, renting tools, supplying labor and building worker camps in far-flung drilling fields, all of which have helped power the U.S. drilling boom.
Baker Hughes, which had a market value of about $ 27 billion at Friday's close, had revenue of $ 15.7 billion last year. GE, which had a market value of more than $ 250 billion, had $ 16.5 billion in revenue from its oil-and-gas business last year.
Boston-based GE, which makes a range of industrial equipment from jet engines to MRI machines, also produces heavy equipment like blowout preventers, pumps and compressors used in petroleum exploration and production.
In the fall of 2014, GE assured investors that its assumptions of growth were based on oil prices around $ 100 a barrel—just in time for the bottom to fall out of the crude market, triggering cutbacks in capital spending that have hammered GE's sales and profits. Earlier this month, GE cut its full-year sales forecast after reporting declining third-quarter orders in the segment.
A combination with Baker Hughes would be among GE Chief Executive Jeff Immelt's biggest deals. The company has done more than $ 14 billion of acquisitions since 2007 to build its oil-and-gas business.
Mr. Immelt has pledged to be opportunistic about acquisitions in the segment and predicted that GE would exit from the oil downturn with a lean organization and a strong position against competitors such as National Oilwell Varco Inc. and Schlumberger.
Activist Trian Fund Management LP last year took a $ 2.5 billion stake in GE and has said the company must be more "disciplined" in its deal making. GE shares had done little since then and are still well below their high of more than a decade ago.
Baker Hughes has its own activist holder. ValueAct Capital Management LP purchased a stake after the Halliburton deal was announced that is now at 7%. ValueAct had suggested Baker Hughes could sell at least some of its businesses.
—Ted Mann contributed to this article.
Write to Dana Cimilluca at dana.cimilluca@wsj.com, Dana Mattioli at dana.mattioli@wsj.com and David Benoit at david.benoit@wsj.com
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