General Electric Co. reached a deal to combine its oil-and-gas business with Baker Hughes Inc., creating a publicly traded energy powerhouse that would give GE a cost-effective way to play any recovery in the industry.

GE will contribute its oil-and-gas business and $7.4 billion through a special one-time cash dividend of $17.50 for each Baker Hughes share. The new company will be publicly traded on the New York Stock Exchange and will be 62.5% owned by GE and 37.5% owned by Baker Hughes shareholders.

The...