By Elizabeth Martinez
Money and Investing Writer
General Electric Company (NYSE:GE) has announced their plans to merge its oil and gas division with one of the top oilfield service providers, Baker Hughes Incorporated (NYSE:BHI), in the upcoming year (2017).
While General Electric has been steadily increasing in the stock market for the past 10 years, they have seen a recent decline, which may have sparked the decision to merge.
Despite this minor decline, General Electric has already established a strong foothold in the energy market, which they engaged in shortly after they built the foundation of their company. Baker Hughes, on the other hand, has focused on creating markets through innovation since their creation in 1987, and has helped many smaller companies improve both the quality of their products, and their bottom lines through similar mergers.
With Barker Hughes initiative, and General Electric’s size, this merger is expected to be highly beneficial for both parties.
The plan is for the two companies to unify as one new publically traded company, which will offer substantial rewards to both parties’ shareholders. Specifically, Barker Hughes shareholders would own 37.5 percent of the company and receive a special one-time only dividend of $17.50 per share, while General Electric would own the remaining 62.5 percent of the company.
While many financial analysts see this as a proper decision to make because it is sure to strengthen both companies internally, it may be worth contemplating other perspectives especially with the recent strides made in alternative energy sources. If it is the case that General Electric is using this merger to “save” themselves from drowning, it would be prudent to consider that the very thing they are investing in may become obsolete in a matter of years. If that is the case, this could become a dead weight on the company pushing them further into debt.
However, Baker Hughes has been dipping their toes into the alternative energy source pools for some time now. In fact, they have even been investing time and resources into complying with national clean energy standards, and ways of making oil and gas cleaner to use. This could make them an invaluable asset later on if alternative energy does take off; provided General Electric is able to maintain their new relationship with Baker Hughes, and expand upon it. If they were able to succeed in this merger, they may be able to open the door towards expanding their own energy departments by merging another section of their company with Barker Hughes.
Of course, scientific time predictions have been incorrect before, and it may still be some time before alternative energy sources become inexpensive enough for the general public to afford.
However, when these energy sources do become inexpensive, many companies including General Electric may have a substantial amount of work ahead of themselves to stay competitive in the energy market.
This upcoming merger is sure to keep General Electric ahead of the game, regardless of whether the alternative energy sectors of the market manages to climb past the oil and gas sectors.
A version of this article appeared in the Tuesday, November 8th print edition.
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