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Baker Hughes : GE to Give Up Majority Control of Baker Hughes -- Update

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09/10/2019 | 05:03pm EDT

By Thomas Gryta

General Electric Co. is giving up majority control of Baker Hughes, selling shares in the oil-field services firm that will raise about $3 billion cash but trigger a more-than-$7-billion accounting charge.

GE executives have said they planned to wind down their stake in the business, which GE acquired when it merged its struggling oil and gas division with Baker Hughes in a 2017 deal. The combination created a new public company that was 62.5% owned by GE.

GE has been selling its stake to both exit the business and raise cash to pay down its debt load. Last year, GE sold a $4 billion stake and recorded a $2.2 billion loss on the transaction, which reduced its ownership from 62.5% to 50.2%.

Based on the current share price of Baker Hughes, GE could bring in about $2.9 billion from the latest sale. With a 105-million-share secondary offering and a $250 million stock- buyback by Baker Hughes, GE's stake will fall below 40%.

GE will no longer include the financial results of Baker Hughes with its own and will have to take an accounting charge estimated to be $7.4 billion as of July 24. The final proceeds and size of the charge will depend on the offering's pricing.

The charge is necessary because the market value of the Baker Hughes stake has dropped compared with how GE was carrying it. GE's stake was worth about $12.5 billion at Tuesday's closing price.

Baker Hughes shares closed Tuesday at $24.11; two years ago the stock traded at almost $37. The stock fell nearly 4% in late trading.

A GE spokeswoman pointed to Baker Hughes' regulatory filing and prior public comments.

The stake sale is the latest move by Chief Executive Larry Culp to raise cash and pay down GE's more than $100 billion in debt. It recently reached a deal to sell its airplane finance arm of GE Capital to Apollo Global Management, and has sold its transportation business. It is in the process of selling its biotech business to Danaher Corp for $21 billion.

Shortly after Mr. Culp became CEO in October 2018, GE reached a deal with Baker Hughes to start selling its stake earlier than planned. GE had been prevented from selling its stake in Baker Hughes until July 2019 as part of the merger agreement.

GE also will lose its control of the Baker Hughes board, giving it only a single seat instead of the previous five. It expects GE veteran John Rice to stay on the board, while departing finance chief Jamie Miller and former director James Mulva will resign.

Former GE-appointed directors Lorenzo Simonelli, who is Baker Hughes' chief executive, and former GE director Geoffrey Beattie will stay on the board but won't be GE appointees. If GE's stake falls below 20%, it will lose its single remaining seat on the board.

GE's core business is making jet engines, turbines, MRI machines and other heavy-duty industrial equipment, and the oil and gas operations long weighed on financial results.

GE spent more than $14 billion on deals in the sector over a decade under former CEO Jeff Immelt, but the timing of the investment was poor. In 2014, GE told investors that its assumptions of growth were based on oil prices at around $100 a barrel just as prices collapsed. Oil closed Tuesday at around $58 a barrel.

Last month, Harry Markopolos, the accounting expert who raised red flags about Bernard Madoff's Ponzi scheme, accused GE of improperly accounting for the Baker Hughes stake.

GE rebutted that claim, saying it is required to report financial information about its Baker Hughes business as part of its own results. Two accounting professors contacted by The Wall Street Journal said GE was properly accounting for the stake.

Write to Thomas Gryta at thomas.gryta@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BAKER HUGHES 4.80% 23.81 Delayed Quote.5.67%
GENERAL ELECTRIC COMPANY 0.43% 9.38 Delayed Quote.23.91%
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Financials (USD)
Sales 2019 24 299 M
EBIT 2019 1 596 M
Net income 2019 426 M
Debt 2019 3 726 M
Yield 2019 3,02%
P/E ratio 2019 29,9x
P/E ratio 2020 16,5x
EV / Sales2019 0,77x
EV / Sales2020 0,71x
Capitalization 15 045 M
Duration : Period :
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Technical analysis trends BAKER HUGHES
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus BUY
Number of Analysts 28
Average target price 29,44  $
Last Close Price 23,81  $
Spread / Highest target 51,2%
Spread / Average Target 23,7%
Spread / Lowest Target 5,00%
EPS Revisions
Lorenzo Simonelli Chairman, President & Chief Executive Officer
Uwem Ukpong Chief Global Operations Officer
Brian Worrell Chief Financial Officer
Derek Mathieson Chief Marketing & Technology Officer
Jennifer Hartsock Chief Information Officer & Vice President
Sector and Competitors
1st jan.Capitalization (M$)
BAKER HUGHES5.67%15 045
TECHNIPFMC31.56%11 502
SAIPEM43.43%5 131