GE, Baker Hughes in partnership talks

NEW YORK • General Electric is holding discussions with Baker Hughes 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 being considered do not include "an outright purchase", according to GE spokesman Deirdre Latour, following a report by the Wall Street Journal saying the company was in talks to buy Baker Hughes.

Oilfield contractors are increasingly forming partnerships in an effort to cut costs and offer oil explorers more streamlined and comprehensive options on 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 current 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, said Mr Richard Spears, vice-president of oilfield consultant Spears & Associates. Schlumberger recently bought equipment maker Cameron International.

Baker Hughes terminated plans to be acquired by Halliburton 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 US$10 billion (S$13.9 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 ranks 11th, according to April data from Spears & Associates.

Sales in GE's oil and gas unit fell 25 per cent in the third quarter, the most among the firm'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 US$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", said Mr Julian Mitchell, an analyst with Credit Suisse Group.

A full acquisition might not make sense, he said, due to the size of such a deal and questions over whether Baker Hughes shareholders would support it.

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A version of this article appeared in the print edition of The Straits Times on October 29, 2016, with the headline 'GE, Baker Hughes in partnership talks'. Print Edition | Subscribe