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G.E. To Sell Remaining Stake In Baker Hughes Over Three Years

General Electric has announced its plans to completely divest from oil services giant Baker Hughes  by selling its remaining 377 million shares over three years. At current prices, the 37% stake is worth $5.5 billion — down significantly in the past year as shares in both companies have slumped nearly 40% ytd according to information made available by forbes. 

With the oil industry in depression, Baker’s second quarter revenue was down 21% over last year, with a loss of 31 cents per share. G.E.  meanwhile reported today a loss of 15 cents, with revenue down 38% to $17.8 billion. 

It’s been a complicated three-year marriage. When General Electric in 2017 merged its oil and gas services business into Baker Hughes and paid Baker shareholders $7.4 billion cash for the opportunity, the idea was for G.E. to rid itself of an underperforming business while building up Baker into a worthy competitor to Schlumberger and Halliburton . 

After the deal, G.E. owned 63% of the repositioned operation, vs 37% by former Baker shareholders. 

Almost immediately, G.E. (trapped under a mountain of debt) began looking for ways to get its money out. In 2018 G.E. sold a $4 billion stake (at a $2.2 billion loss), followed by a $3 billion sale in 2019 (which triggered a hefty $7 billion accounting charge for the already reeling G.E.). The company says it is carrying that remaining $5.5 billion stake at a $3.8 billion loss. 

According to Marc Bianchi, analyst at Cowen & Co. , G.E.’s 3-year sales plan will equate to about 7% of average daily value in BKR shares. “While the announcement provides a long-awaited resolution to the G.E. overhang, it could be a disappointment BKR investors hoping for a more rapid unwind.” G.E. will work with an unnamed Wall Street shop to market the shares. Bianchi, in a research note this morning broke down the math: with 750 trading days over three years, G.E. will be jettisoning a half-million shares per day. That’s about $8 million per day at BKR’s current price of $15.28.  And that perennial selling pressure could weigh on Baker’s share price in the short run. The stock is down 3.75% so far today. 

G.E. says it will use the proceeds to pay down its total consolidated debt of $81.9 billion. At a current $6.61, G.E. shares are off 52-week lows, trading at levels last seen in 1991.

Institutional investors have criticized the deal since the beginning, with a pending case in Delaware Chancery Court arguing that G.E. tricked Baker Hughes into the deal with false financial projections. They companies have urged the case to be dismissed.


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