Crop collides with GE's quick exit from Baker Hughes Stake

HOUSTON (Reuters) – When General Electric Co bought oil services giant Baker Hughes last July, it created a global industry giant with an annual business turnover of $ 22 billion.

GE has promised to digitize oilfields worldwide, marrying its expertise in Big Data, analytics software and underwater equipment with Baker Hughes' experience in drilling services, chemicals and chemicals. the tools.

Less than a year later, GE relinquishes the deal, the firm said Tuesday, planning to sell its 63% stake in the combined business as part of a broader initiative aimed at simplify business and reduce debt.

According to Reuters and interviews with over 30 employees, former employees, recruiters, analysts, suppliers and customers, the downturn accompanies a decline in market share, management errors and cultural conflicts that have destabilized employees and frustrated suppliers and customers.

GE executives first took 11 of the top 15 combined company positions and ushered in a book culture more similar to its aerospace sector than the oil industry where relationships are more prized and handshake agreements are still common. relationships with both.

In a Tuesday memo to employees seen by Reuters, Baker Hughes GE Managing Director, Lorenzo Simonelli, congratulated his team and reassured them on the way forward, but acknowledged that last year did not go to the polls. has not always been easy for you or our customers. "

"I recognize that this moment is sweet for some, perhaps welcomed by others," he writes.

Baker Hughes GE has lost market share in 12 of the 19 service and equipment sectors between 2016 and 2017, according to a Reuters analysis of data from the leading oil services consulting firm Spears & Associates. In an area where Baker Hughes has been a pioneer, forests, his share has fallen to 17% from 20% between 2016 and 2017.

In a statement to Reuters, GE's Baker Hughes attributed the market share losses to a "tough market momentum" and said most losses occurred prior to the merger in the summer of last year.

Since the merger, suppliers have been subject to stringent cost-cutting requirements and some customers have turned to competitors after sharp increases in service fees and contract changes, according to suppliers, customers and former executives Baker Hughes. The hectic transition also drove Baker Hughes' seasoned managers into key departments and the staff shook.

Last year, the combined company's revenues were $ 21.9 billion, well below the $ 23.8 billion forecast in its 2017 merger mandate.

Baker Hughes GE's oil services and equipment revenues decreased by $ 700 million. Rivals Schlumberger and Halliburton posted higher revenues following a resurgence in the North American hydraulic fracturing market, said Chirag Rathi, consulting director at market researcher Frost & Sullivan. Baker Hughes sold the majority of its hydraulic fracturing business in 2016.

Baker Hughes GE said his financial performance reflected the industry's major trends and called himself a "strong and differentiated company" which now has a "definite path" to unravel the merger over the next two or three years. He said that he would remain focused on supporting workers, customers and increasing shareholder value.

Shares of Baker Hughes GE rose 2% to $ 33.13 on Tuesday, but have decreased by almost 18% since the end of the merger.

The company will now divide even before completely integrating the two companies. While the combined culture remains a work in progress, "the old Baker Hughes structure has been torn apart," said Edward Muztafago, director of equity research at Société Générale.

It remains to be seen whether Baker Hughes will continue to benefit from GE's financial weight and its long-term, state-of-the-art manufacturing.

Last year, Baker Hughes entered into a major agreement with Twinza Oil to provide oil services, equipment and financing for offshore development near Papua New Guinea. Analysts say that access to credit and credit from GE Capital, a unit that GE plans to reduce, has helped to bring this deal to fruition.

For now, Baker Hughes will continue to have access to the GE technologies that have been cited as key benefits in the initial merger, including the GE Store, a technology and manufacturing center, and the system. 39, Predix operation of GE. said the company. But the company said Tuesday that it would also develop solutions independent of the Predix system.

BREAKDOWN OF PRICES ABRUPTION, CHANGE OF CONTRACT

Shortly after the merger ended last year, Baker Hughes GE made an "overnight" decision to raise prices and internal sales targets, said a former employee at Reuters. Movements, as well as cost containment of contracts with suppliers, were aimed at increasing revenues and margins.

Although oil margins have improved modestly, they remain well below those of major rivals Schlumberger and Halliburton, said Colin Davies, an analyst at Bernstein, who noted that the recovery in oil prices had resulted in margin gains in oil prices. # 39; industry.

A private American oil producer who uses Baker Hughes GE's artificial lifting products said the company had raised its service prices by 20% at the end of last year without notice. The client transferred part of its business to a competitor, Novomet Inc., even after Baker Hughes GE agreed through negotiations to reduce the increase.

"They do not manage the account as personally as they should," said the client, refusing to be named because of the ongoing business between the two companies.

Baker Hughes GE declined to comment on his prices except to say that he made regular adjustments to remain competitive.

Suppliers have also been confronted with changes after merging contractual terms and procurement processes. One company told Reuters that Baker Hughes GE was demanding a 3.5% discount on products and a 120-day grace period on payments, which the company rejected. Normally, customers pay within 30 to 60 days, depending on the provider.

A conflict degenerated into a lawsuit for breach of contract. Markall Manufacturer Inc. built a successful business supplying components to Baker Hughes for four decades, but the relationship quickly deteriorated after the merger.

In the lawsuit, filed in November, Markall alleges that Baker Hughes GE had not paid more than $ 5 million in custom pieces that she had agreed to buy before the merger.

Baker Hughes GE declined to comment on the lawsuit, saying he's dealing with issues prior to the acquisition.

Exodus of Executives

GE CEO John Flannery, appointed shortly after the merger, announced the announcement last Tuesday when he said the company was considering its "exit options" only a few months ago. after the acquisition of its majority stake.

The company then canceled a planned transfer of former Baker employees to GE's healthcare plan, several former employees of Baker Hughes and GE Oil & Gas told Reuters. The decision to cut staff just before the end of the year leave is also bad, said two former workers.

Another sign of tension: the departure of veterans in key positions, according to more than a dozen sources familiar with resignations.

More than 50 CVs of Baker Hughes employees have landed with a professional recruiter since last summer, according to a headhunter.

Melissa Law, a 20-year veteran of Baker Hughes and former president of her global chemical company, joined the food ingredients supplier Tate & Lyle last September. Eric Holcomb, former director of financial planning for Baker Hughes, left after more than a dozen years the Kirby Corp shipping company in December.

The head of global operations, Belgacem Chariag, one of the few Baker Hughes executives to remain in senior management after the merger, resigned in January without announcing a new position.

Chariag has not responded to a request for comment. Baker Hughes declined to comment on departures, but described his overall retention rates as "strong and consistent with the market."