GE’s position in BHGE is worth $23.1 billion

Less than two years after General Electric (ticker: GE) announced it would acquire Baker Hughes, GE has changed its mind, and will divest the company. This came in an announcement today in which GE revealed plans for a sweeping overhaul of its business including moving GE Healthcare out as a standalone business for divestment as well as BHGE.

GE’s struggles over the past year have been well documented, with several of its business lines taking significant charges. The company has divested several businesses as it attempts to slim down, but the company’s decisions after a long evaluation period came today.

What’s going to be left for GE?  Three businesses: aviation, power and renewable energy.

GE Reshuffles Its Full Portfolio: Baker Hughes Will Go

BHGE divestiture announcement comes only 11 months after acquisition closed

GE made waves in the oilfield service industry when it announced the acquisition of Baker Hughes, snapping up the company after the Baker-Halliburton merger idea was beat down by antitrust regulators, resulting in the companies calling the deal off.

GE owns 62.5% of Baker Hughes, the remainder is held by Baker shareholders. Based on the current market cap of $37 billion, GE’s stake in Baker is worth about $23.1 billion. Exiting the company will take GE up to three years, the company said, as the firm’s lock-up period does not expire until July 2019. GE has not committed to a formal exit plan, but stated it will separate in an orderly manner over the next two to three years.

GE Reshuffles Its Full Portfolio: Baker Hughes Will Go

This is a very rapid turnaround for the company, which only completed its acquisition of Baker in July 2017. In fact, the process of integrating Baker Hughes and GE Oil & Gas assets is still not completed. Baker Hughes was GE’s fourth largest business line last year, with $17.2 billion in revenue.

The spinoff of GE Healthcare removes an even larger business sector, the division had revenue of $19.1 billion last year. The spinoff will also allow GE to significantly decrease its debt, as the firm will allocate $18 billion of debt and pension obligations to its healthcare line.

These divestitures, and those previously announced, will leave GE with three divisions: power, aviation and renewable energy. GE Capital will also remain a part of the company, though it is shrinking. GE capital intends to sell $25 billion in energy and industrial assets in the next two years, and is exploring options to reduce its long-term care insurance exposure.

Excerpt – Q&A from GE conference call

Q: Thinking on the two-three-year time horizon for GE Baker Hughes, I mean, that’s been a bit more fungible and doable in a one-year timeframe, so what’s the thinking on that?

GE: Obviously, Baker is already a public company. But beyond that, I’d say like Healthcare, there’s a lot of options that we have to go from here. We’ll be determining that, as we said, over the next two to three years.

I think the big message here for our owners is Baker Hughes is a strong improving asset. You know we had an upstream business. We made a strategic decision to combine it with the downstream business. That’s been very well received by customers, ‘a full stream offering’.

Lorenzo and the team are doing a very strong job integrating the businesses. We’re really right in the middle of executing the merger and making sure we realize all the benefits that both parties foresaw at the time of the merger. So make sure we’re getting the synergies, make sure we’re getting the tech transfer, sharing best practices and know-how are going back and forth, making sure digital is permeating the business. And so I’d say that process is going very well, but we want to let that process run its course.

Our core objective is maximizing the value of BHGE and therefore in turn for GE. So, when that process is completed, BHGE is going to be a very strong robust standalone company.

We like the company a lot, but in the grand scheme of our portfolio analysis, we did not think it made as much sense for us to own that directly overtime as to have outside of the GE construct if you will.

So we thought the best future for that company was a pure play standalone. And again, the team has done a great job executing that. We want to make sure we get the full upside of that before we move from here.


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