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Baker Hughes shares whipsaw on GE oil and gas merger

Oil platforms sit under repair in Guanabara Bay in Rio de Janeiro, Brazil.
Dado Galdieri | Bloomberg | Getty Images
Oil platforms sit under repair in Guanabara Bay in Rio de Janeiro, Brazil.

Shares of Baker Hughes swung from positive to negative territory in volatile trading Monday after the company announced it would merge with General Electric's oil and gas business.

The stock ended the day down 6 percent at $55.40 a share, after touching an intraday peak of $62.16.

Analysts say there is disappointment the deal is not an outright takeover, which would have likely valued shares in the mid-$60 range. GE will pay Baker Hughes shareholders a one-time dividend of $17.50 per share. The industrial giant will control 62.5 percent of a new publicly traded entity to be formed, while Baker Hughes shareholders will have a 37.5 percent stake.

GE Chief Executive Jeffrey Immelt said Monday the structure gives his company and Baker Hughes the opportunity to achieve significant savings through synergies while giving shareholders in both companies upside and allowing GE to preserve flexibility around capital allocation.

"It gives the Baker Hughes investors a 30 to 40 percent premium including synergies and gives I think a better combined business for both GE and Baker Hughes investors going forward, so we like the structure," he told CNBC's "Squawk on the Street."

Baker Hughes CEO Martin Craighead said the structure reduces the risks associated with trying to time the oil price recovery, noting that the merger is geared toward increasing the companies' ability to help drillers hard hit by a two-year crude price downturn to further reduce the cost of extracting oil and gas.

GE and Baker Hughes asserted the deal creates the first major "full-stream" oilfield services company in the sector, with capabilities to cater to the upstream exploration and production space, through midstream infrastructure, to the downstream refining and marketing segment, and power generation.

Some analysts issued positive comments on the deal both from GE's and Baker Hughes' perspective. They noted the closest competitors in light of the new entity's scale are Schlumberger and National Oilwell Varco, though neither can match the scope across segments.

Still, analysts at Jefferies said they believe it will be difficult to derive value from a more integrated and broader portfolio from an implementation standpoint.

"If integration is to yield benefits and thus if it is to be successful in developing revenue synergies, we believe that the coordination required to make forms of integration work is its own skill set and one that is difficult to develop," Jefferies said in a note. "It entails a focus on process and communication across product silos consistent with that required for, say, integrated drilling operations, but now encompassing groups with historically little regular coordination."