GE Will Sell Baker Hughes Stake -- WSJ
November 14 2018 - 3:02AM
Dow Jones News
By Thomas Gryta
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 14, 2018).
General Electric Co. said it reached a deal to sell part of its
stake in oil services company Baker Hughes, providing around $4
billion in cash for the struggling conglomerate.
GE will sell up to 101 million shares in a secondary offering to
the market and Baker Hughes has agreed to repurchase about 65
million shares from its controlling shareholder. The deal followed
talks between the two companies to allow GE to sell about six
months sooner than previously agreed.
Shares of GE rallied on the news, gaining 8% to $8.61 after
tumbling in recent days to their lowest levels in years. However,
GE's bond prices fell sharply in Tuesday's session and the cost of
buying protection against a default by the once-AAA rated company
continued to rise.
GE had told investors in June it planned to sell down its 62.5%
stake in Baker Hughes as part of a restructuring plan to raise cash
and break up the conglomerate. Investors have worried about the
company's high debt load and losses in its core power division. GE
has also agreed to sell its locomotive business and spin off its
health-care unit.
GE had been prevented from selling its stake in Baker Hughes
until July 2019 as part of the agreement when GE combined its oil
and gas business with Baker Hughes. GE said it plans to maintain a
stake above 50% in Baker Hughes after the transactions.
The agreement with Baker Hughes announced Tuesday marks the
first major portfolio move by CEO Larry Culp, who took over on Oct.
1.
In an interview with CNBC on Monday, Mr. Culp sought to ease
concerns about GE's liquidity, saying the Boston-based company has
access to about $40 billion in credit lines in place and is
deleveraging the balance sheet through asset sales. GE has about
$100 billion in debt outstanding, including debt from its GE
Capital financing arm.
The price of GE's widely traded 4.4% bond due 2035 fell Tuesday
about 2.5% to 82 cents on the dollar, with more than $433 million
face amount of the debt changing hands, according to data from
MarketAxess. The company accounted for three of the four most
actively traded corporate bonds in U.S. debt markets, the data
showed.
As the price of GE's bonds fall, their yields rise, pushing up
the cost the company must pay when trying to borrow new funds.
Bonds issued by GE Capital that come due in January 2020 now yield
about 4.6%, up from 3.3% in August.
All three major credit rating firms, S&P Global Ratings,
Moody's Investors and Fitch Ratings, have downgraded their ratings
on GE in recent weeks, leaving the company three notches above
junk.
The cost of protecting against a default on $10 million GE debt
through credit default swaps has roughly tripled in the past two
months to about $199,000, according to data from MarketAxess.
Baker Hughes said it would spend up to $1.5 billion on the share
repurchases from GE, which the oil services company said would be
part of its existing buyback program.
Shares of Baker Hughes rose 20 cents to $23.84 on Tuesday,
giving the company a market value of about $26 billion.
GE's remaining 50.5% stake in the Houston-based company will be
subject to a 180-day lockup period, the companies said, although GE
has told investors it eventually plans to fully separate its
ownership of Baker Hughes.
By July 3, 2019, or whenever GE's voting stake in Baker Hughes
falls below 50%, GE has agreed to reduce its board representation
to one director. GE currently nominates five of Baker Hughes's nine
directors.
--Matt Wirz contributed to this article.
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
November 14, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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