June 26–General Electric went to a lot of trouble to acquire the Houston oilfield services giant Baker Hughes last year and now its CEO wants to unload it, a process that may take until at least 2020.
GE’s chief executive John Flannery said Tuesday he’s aiming for an “orderly separation” from the $37 billion oil and gas business, which employs 7,500 in Houston and 64,000 worldwide. The iconic conglomerate he oversees is struggling to regain its lost financial footing and also is divesting other segments, including health care and transportation.
Baker Hughes has been in an epic merger drama since 2014 when its archrival Halliburton attempted a hostile takeover. That deal collapsed in 2016 amid federal antitrust concerns, opening the door for GE to quickly step in and finalize a friendlier union.
The divorce most likely will come as a spinoff in which GE would pass its Baker Hughes shares to investors. Baker Hughes already operates as an independently traded company on the New York Stock Exchange under the ticker “BHGE.” The deal, however, won’t come hastily because Boston-based GE has a two-year lockup agreement with Baker Hughes.
GE first plans to split from its health care business as part of its plan to slim down and focus on its aviation, power and renewable energy businesses. It is in the midst of a devastating fall from grace as the nation’s biggest industrial giant. It’s stock value has cratered by more than 55 percent since the beginning of 2017. Flannery took over the reins of GE last year after the Baker Hughes merger already was consummated under his predecessor, Jeff Immelt.
Baker Hughes may stand to lose some of the technological support it received from its parent, but a divestiture eliminates some of the uncertainty and trepidation surrounding the energy company, analysts said.
“Whenever you have a troubled parent, the sooner you can go off on your own the better,” said Brian Youngberg, a senior energy analyst at Edward Jones in St. Louis. “Just removing ‘GE’ from the title could prove beneficial.”
Observers don’t expect the GE split to result in any big layoffs for Baker Hughes, which already shed tens of thousands of employees during the oil bust beginning in 2014.
Tuesday’s news wasn’t particularly surprising because Flannery first made waves in November — just four months after GE acquired a majority stake in Baker Hughes — when he said he was seeking a way out of the oil and gas sector with its boom-and-bust cycles. A spinoff of GE’s 62.5 percent stake in Baker Hughes to its GE shareholders is the most likely scenario because there are few, if any, potential buyers, analysts said.
Baker Hughes is still finding its way after the GE merger and seeking to establish its new identity after the recent oil bust and a rebound in crude prices. Although both businesses were struggling at the time, the merger was seen as a good fit that combined Baker Hughes’ strengths in drilling and equipment with GE’s breadth and international scale, including GE’s experience in burgeoning industries like liquefied natural gas.
And the deal put together companies founded by historical icons. GE was co-founded by Thomas Edison and Baker Hughes was co-founded by Howard Hughes Sr. The merger made sense because Baker Hughes and GE Oil & Gas are stronger together, Flannery said. The combined divisions will be better positioned to compete as one.
A Baker Hughes spokeswoman said the company remains focused on its employees, customers and shareholders. “BHGE is a strong and differentiated company positioned for growth,” she added. “GE’s announcement to fully separate BHGE over the next two to three years provides a defined path for us, and is one we are prepared for.”
Baker Hughes is led by CEO Lorenzo Simonelli, a longtime GE employee who previously headed the oil and gas business. Simonelli was short-listed for the GE CEO gig that ultimately went to Flannery.
The merger with GE’s oil and gas division created a new company with a stock market value of more than $35 billion and vaulted Baker Hughes from a distant third in energy services to the second largest, behind global leader Schlumberger and slightly ahead of Halliburton. Baker Hughes is now valued at more than $37 billion.
Wall Street reacted favorably to Tuesday’s news as the stock jumped more than 2 percent up to a closing price of $33.14 a share. Still, Halliburton has since moved slightly past it with a nearly $40 billion value.
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