GE Cuts Baker Hughes Stake -- WSJ
September 11 2019 - 3:02AM
Dow Jones News
Conglomerate to raise $3 billion by giving up majority control
of oil-services firm
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 (September 11, 2019).
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
(END) Dow Jones Newswires
September 11, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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