The merger of Baker Hughes (NYSE:BHI) and General Electric‘s (NYSE:GE) oil and gas operations, announced earlier this month , is expected to create a leading equipment, technology, and services provider in the oil and gas industry with operations in more than 120 countries. In our previous analysis, we had determined the estimated value of the New Baker Hughes company that is likely to be formed by the amalgamation of the two companies. Based on the estimated value of Baker Hughes and GE’s Oil and Gas division (using their respective EV/EBITDA multiples for 2018), along with the present value of the estimated cost and revenue synergies, we arrived at a value of $63.4 billion for the New Baker Hughes company. Now, we aim to calculate the value that the Baker Hughes shareholders will derive from the deal and whether the transaction makes economic sense for them.
Under the terms of the deal, Baker Hughes shareholders will hold 37.5% ownership of the newly formed company, while the remaining 62.5% share will be held by GE. Further, Baker Hughes shareholders will receive a sum of $7.4 billion, or $17.50 per share, as a one-time special dividend as part of the arrangement. Based on these numbers, below we show that Baker Hughes will derive a value of approximately $31.2 billion from the deal.
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- Baker Hughes To Report A Subdued Recovery In 1Q’17 Compared To Its Peers
- Baker Hughes Is On The Path To Recovery, Despite Weak 4Q’16 Earnings
- Baker Hughes’ Fourth Quarter Earnings To Witness A Rise Driven By An Improvement In Oil Prices
- Baker Hughes’ 2016 In Review: Halliburton’s Loss Is GE’s Gain
When we compare the value derived from the GE deal with the value of Baker Hughes’ equity before the deal, we figure that the company’s shareholders will enjoy an incremental value of roughly $5.6 billion, or $13.20 per share. This implies that the shareholders will receive a premium of almost 22% over their existing value before the deal. Given that the outlook for commodity markets continues to be uncertain, this appears to be a fair deal for Baker Hughes’ shareholders. Besides, they will continue to hold a position in the new company, which will enable that to be a part of the company’s long-term growth.
Have more questions about Baker Hughes (NYSE:BHI)? See the links below:
- Here’s Why Trefis Has Revised Baker Hughes’ Price To $60 Per Share
- Baker Hughes’ 3Q’16 Earnings Improve On The Back Of Cost Savings; Outlook Remains Uncertain
- How Will The Global Rig Count Move As The Commodity Prices Recover?
- How Will Baker Hughes’ Presence In North America Impact Its Operating Margins?
- How Does Baker Hughes Plan To Deal With The Ongoing Commodity Slump?
- Baker Hughes’ Earnings Continue To Plunge; Company Foresees A Weak Second Half
- What To Expect From Baker Hughes’ 2Q’16 Earnings Results?
- How Will Baker Hughes’ Revenue Move If Crude Oil Prices Rebound To $100 Per Barrel By 2018?
- How Will Baker Hughes’ Revenue Move If Crude Oil Prices Average At $50 Per Barrel In 2018?
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email firstname.lastname@example.org
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Baker Hughes
View Interactive Institutional Research (Powered by Trefis):Notes:
- GE and Baker Hughes Agree To Create New Fullstream Digital Industrial Services Company, 31st October 2016, www.bakerhughes.com [↩]