The same day that Halliburton Co. and Baker Hughes Inc. called off their $ 28 billion deal, Lorenzo Simonelli fired off an e-mail to Baker Hughes' Martin Craighead.
The head of the oil and gas business for General Electric Co. was reaching out to the chief executive officer for the world's third-largest oil services company to introduce the various ways the two contractors in the oil world could work together, Simonelli said Monday in a phone interview, along with Craighead and GE CEO Jeff Immelt.
“I was pleased,” Craighead said of the message from Simonelli. “We had a whole plan ahead of us, things we had to do, but we kind of hit it off at the first meeting and things started to take off from there.”
Craighead's early enthusiasm about working with GE contrasts with the testy exchanges that characterized negotiations with Halliburton CEO Dave Lesar. At one point before the deal was clinched, Craighead released letters he wrote to Lesar in which he said he was disappointed with Lesar's “complete unwillingness to show any flexibility” on valuing Baker Hughes. He chastised him for “intransigence” and “coercive tactics.”
GE's deal to combine its oil and gas division with Baker Hughes will create an industry giant with $ 24 billion in annual sales next year, the companies said Monday citing analyst estimates. GE will own 62.5 percent of the "new Baker Hughes," which will be publicly traded. The deal is expected to close in the middle of next year.
When completed, the new Baker Hughes would become the world's second-largest oil services and equipment company, based on expected sales next year, Andrew Cosgrove, an analyst at Bloomberg Intelligence, said in a phone interview.
Halliburton Deal
Baker Hughes terminated plans to be acquired by the current No. 2 oil services provider Halliburton on May 1 after failing to win antitrust approval from regulators. GE has acknowledged in the past that it had held talks about possibly bidding for parts of Baker Hughes that Halliburton was seeking to unload for the deal.
Over the past couple months, Immelt said he and Craighead met a number of times, both in Baker Hughes' home city of Houston and in New York near the headquarters for the industrial-equipment behemoth. “Even late-night phone calls,” Craighead said.
By joining forces, Baker Hughes and GE are betting they can compete more effectively with the world's top oilfield-services provider, Schlumberger Ltd., which recently bought equipment-maker Cameron International.
Schlumberger Challenger
"We felt like the oilfield service space was a gap in the portfolio," Immelt said.
Oilfield contractors are increasingly forming partnerships to help cut costs and expand their offerings and distribution channels during the oil market downturn. An hour after the GE-Baker Hughes announcement, Nabors Industries Ltd., the world's largest land-drilling contractor, announced a joint venture with Saudi Aramco to own, manage and operate onshore rigs.
GE and Baker Hughes first started talking earlier this year to see how they could offer a joint technology package that marries GE's digital prediction operating system with the oil service company's equipment to target jobs being done in the oilfield. They've already reached an agreement with a large, onshore natural gas explorer in North America, said Craighead, declining to name the company.
Complementary Businesses
“After the failure of Halliburton-Baker Hughes, I took the opportunity to reach out to Martin and really start to look at ways in which we could collaborate to provide the customers what they were asking for, which was productivity and a lower cost per barrel,” Simonelli said. “What resulted was really an understanding of how the two businesses were very much complementary in the portfolio.”
Simonelli will serve as CEO of the merged company, while Immelt will be chairman and Craighead will be vice chairman. GE will contribute $ 7.4 billion to fund a special dividend of $ 17.50 a share to Baker Hughes stockholders.
The positive chemistry between the two companies gives Craighead confidence in the new entity, he said.
“People are finishing each other's sentences,” Craighead said. “You really can't tell by the end of the day who's on what side of the table.”
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