June 26–Baker Hughes joined the General Electric family just a year ago, but financially struggling GE is now publicly stating it wants an “orderly separation” from the oil field services firm in the next two to three years.
GE Chief Executive John Flannery said Baker Hughes, which is based in Houston and has a large facility in San Antonio to serve the Eagle Ford Shale, is best positioned outside of the GE as a tier-one oil and gas services and equipment player. GE also is planning to separate from its health care and transportation businesses as it focuses on aviation, power and renewable energy after undergoing an internal strategic review.
The news isn’t necessarily surprising since Flannery made waves in November — just four months after GE acquired a majority stake in Baker Hughes — when he said he would seek a way out of the deal. Now it looks like GE will eventually sell off its 62.5 percent stake in Baker Hughes, which already operates as an independently traded company on the New York Stock Exchange under the ticker “BHGE.”
“We are confident that positioning GE Healthcare and BHGE outside of GE’s current structure is best not only for GE and its owners but also for these businesses, which will strengthen their market-leading positions and enhance their ability to invest for the future, while carrying the spirit of GE forward,” Flannery said Tuesday.
GE has a two-year lockup agreement with Baker Hughes that doesn’t allow it to break up until mid-2019 without the approval of a special committee of board members. So it’s unlikely any split would be finalized until 2020.
A Baker Hughes spokeswoman responded to GE’s announcement by saying 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.”
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 Schlumberger and slightly ahead of Halliburton. The deal was widely viewed as a good fit that combined Baker Hughes’ strengths in drilling and equipment with GE’s breadth and international scale.
While Baker Hughes is now valued at about $37 billion on Wall Street, Halliburton has since moved slightly past it with a $39 billion value.
However, GE has seen its stock value crater by more than 55 percent since the beginning of 2017, a devastating fall from grace for the nation’s largest industrial conglomerate.
The GE deal was made possible after Halliburton’s planned takeover of Baker Hughes collapsed two years ago amid federal antitrust concerns in the U.S. as well as in Europe.
As the parent GE undergoes its own radical overhaul, the eventual separation is both good and bad news, said Byron Pope, an energy analyst with Tudor, Pickering, Holt & Co. in Houston.
The good news is GE will take its time with the separation and not force a hastily misguided divorce before the breakup period ends. The bad news, though, is that a split now appears inevitable, which could weaken the financial and technological support its receives from its industrial parent, Pope added.
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