Baker Hughes CEO Confirms Talks With GE -- Update
October 28 2016 - 4:38PM
Dow Jones News
By Ted Mann and Anne Steele
Baker Hughes Inc. on Friday confirmed that it is in discussions
with General Electric Co., a day after The Wall Street Journal
reported the companies were in talks about a potential
transaction.
In an email to employees, CEO Martin Craighead wrote, "I want to
clarify that while we have been in discussions with GE, nothing is
concluded and there is no guarantee anything will be concluded." He
wasn't more specific about the discussions. A copy of the message
was filed Friday with securities regulators.
Shares of the two companies rallied Friday. GE's stock gained
2.1% to $29.22 Friday, while Baker Hughes added 8.4% to $59.12.
GE has approached the oil-field-services company about a merger
with GE's oil and gas business, people familiar with the matter
said. Details of the talks couldn't be learned, and the talks could
break down before an agreement is reached.
A GE spokeswoman said Thursday that the company was pursuing
"potential partnerships" with Baker Hughes, but that GE wasn't
exploring an "outright purchase." GE declined further comment
Friday.
The public statements have left Wall Street confused and
analysts contemplating various options available to GE. A
combination could create a company with more than $25 billion in
revenue that would compete with rivals like Schlumberger Ltd. to
provide equipment and services to oil rigs and wells.
"Our first reaction is, 'What is a partnership?'" wrote analysts
for Credit Suisse. "Combining product lines or services makes
sense, but that is a 'joint venture,' not really a
partnership."
A partnership could be "very important strategically" for the
two companies, said Steven Winoker, an analyst at Sanford Bernstein
& Co., in a note to investors. Mr. Winoker also suggested GE
could leave itself an option to buy Baker Hughes down the line.
One possibility would be for GE to merge its $16.5 billion
oil-and-gas unit with Baker Hughes, and the combined business would
then be spun off into a stand-alone public company, jointly owned
by the two companies' shareholders. Such a transaction, called a
Reverse Morris Trust, would enable GE to avoid a hefty tax bill and
allow the company's shareholders to reap any cost-savings or other
benefits from putting the two businesses together -- as well as any
upside from a rebound in oil prices.
After two brutal years in the energy industry, GE and some of
its rivals have begun to see signs of hope in the oil-and-gas
business.
Honeywell International Inc. CEO Dave Cote told investors
earlier this month that the company believes a recovery in the
energy industry is coming next year. "It won't be a V-shaped
recovery as we go into '17, but this is clearly the bottom, and
you're starting to see the improvement of that in the fourth
quarter and with the orders that we're already getting."
Just last week, GE also provided glimmers of improvement from
the third quarter, noting that U.S. rig and well counts remained
down 50% from the previous year, but had ticked upward in the
previous three months. Still, orders for services were down across
all of GE's oil business, the company said.
In recent public comments, GE has said it is still committed to
the oil-and-gas unit for the long term, but GE says operating
profit in the unit will be down by 30% for the year, and is cutting
more than $1 billion in costs out of the company over two
years.
There are "incremental cost actions" still to be made in the
business in 2017, Chief Financial Officer Jeffrey Bornstein said
last week on GE's third-quarter earnings call. But he agreed with a
stock analyst who suggested that the oil business could be running
low on areas to cut costs as it tries to return to
profitability.
"We think Oil & Gas is going to continue, as you look
forward, to be a drag," CEO Jeff Immelt said on last week's call.
"Our team is doing a really good job. We're executing well. We're
taking costs out. But we're not really forecasting a hockey stick
in Oil & Gas."
Write to Ted Mann at ted.mann@wsj.com and Anne Steele at
Anne.Steele@wsj.com
(END) Dow Jones Newswires
October 28, 2016 16:23 ET (20:23 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Baker Hughes (NYSE:BHI)
Historical Stock Chart
From Aug 2024 to Sep 2024
Baker Hughes (NYSE:BHI)
Historical Stock Chart
From Sep 2023 to Sep 2024