GE to sell up to 20% stake in Baker Hughes
Agreement lets conglomerate raise some much needed cash from oil-services investment
General Electric Co. said it plans to sell up to 20% of its majority holding in oil services company Baker Hughes, providing around $4 billion (U.S.) 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.
Based on Monday’s closing price of $23.64, the sales would raise roughly $4 billion for GE.
GE had been prevented from selling its stake in Baker Hughes until July 2019 as part of the agreement that formed the company, 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.
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 breakup 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.
The agreement with Baker Hughes announced Tuesday marks the first major portfolio move by Chief Executive Larry Culp, who took over on Oct. 1 and has tried to reassure inves- tors that he is putting the company on the path to growth after two years of turmoil.
Mr. Culp slashed the company’s dividend to a token amount and declined to provide any financial guidance for investors. He also disclosed a Justice Department probe into the company’s accounting practices, along with an investigation by the Securities and Exchange Commission.
Shares of GE have tumbled more than 50% in the past year and are trading at their lowest levels since the 2009 financial crisis.
GE shares rose 18 cents to $8.17 in premarket trading, while Baker Hughes fell 2% to $23.
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.
GE’s remaining 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 the nine members of Baker Hughes’ board.
If its stake falls below 20%, GE will cease having any directors on the board.
As part of the agreement between the two companies, GE has also transferred some of its U.K. pension liabilities to Baker Hughes on what the companies said was a fully funded basis.
Baker Hughes will reduce the amount of intercompany service fees it pays back to GE starting Jan. 1.