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Cover story: A force to reckon with

by Indrajit Sen on Nov 12, 2017

Lorenzo Simonelli, CEO of Baker Hughes.
Lorenzo Simonelli, CEO of Baker Hughes.
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News about mergers and acquisitions (M&A) in the oil and gas industry have become frequent in recent times, as stakeholders in the energy sector seek to drive optimisation of resources to achieve operational excellence. In most cases however, it is the larger party with the greater financial strength that acquires the smaller entity, to gain control of the latter’s portfolio and client base. A merger of equals, whereby the deal is not just about the big player winning over the smaller one, but more about integration of the common value systems, seldom happens.

Such a merger between two oilfield services majors – GE Oil & Gas and Baker Hughes – was successfully completed in July this year, as the management of both the American companies had envisaged – thereby creating a giant products and services provider, capable of serving the full spectrum of the global oil and gas industry. The formation of Baker Hughes, a GE Company (BHGE) – an organisation with headquarters in both London and Houston, and with a capacity to generate $23bn in annual revenues – is a tale of synergies between the cultures of driving technology and innovation of these two companies.

“When you look at the heritage of these companies, you have (Thomas Alva) Edison on one side, and (Reuben C) Baker and (Howard R) Hughes on the other – so huge engineering and technological icons really,” Lorenzo Simonelli, the chariman, president and CEO of Baker Hughes, said in reflection of the rich legacy of the two firms.

The collaboration of the two companies at the global level has meant that Simonelli, a native of Tuscany, Italy, is leading an enterprise that does business in 120 countries and has a burgeoning workforce of 70,000. Also, General Electric (GE) having forays into major industrial sectors like power, healthcare, aviation, transport, etc, implies that BHGE has the capability to partner with governments to assist in the development of infrastructure, beyond just the provision of oil and gas services in those countries.

It should come as no surprise that an oilfield services company as valuable as Baker Hughes, had been courted by several of its peers for a merger; so the road to acquiring the company may not have been smooth for GE Oil & Gas. The very fact that the GE management had set its sight on Baker Hughes, and then undertook all the pains to ensure a successful merger, does speak volumes about the leadership’s overall rationale and larger intention behind the acquisition.

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