General Electric to Lose Controlling Stake in Baker Hughes

General Electric Company GE along with GE Oil & Gas US Holdings IV, Inc., GE Oil & Gas US Holdings I, Inc. and GE Holdings (US), Inc. have offered 105 million shares in Baker Hughes, a GE company BHGE for purchase to the public.

Concurrently, Baker Hughes agreed to buy back $250 million shares from General Electric and others through a privately negotiated transaction.

We believe that the news lifted market sentiments for the industrial giant, evident from 2% growth in the share price yesterday. On the contrary, the divestment lowered Baker Hughes’ shares by roughly 0.3%.

Inside the Headlines

As noted, the secondary offering includes Class A common stocks of Baker Hughes, with each having $0.0001 par value. Also, selling stockholders have given underwriters the option to purchase an additional 15.75 million shares of Baker Hughes within 30 days.

As a result of this stock offering, General Electric will lose its controlling shares (roughly 50.4% at the end of the second quarter of 2019) in Baker Hughes. Also, General Electric will have to give up four of its board seat to BHGE and will be left with just one member in Baker Hughes’ board.

In addition, the stock buyback by Baker Hughes will comprise Class B shares, with each having par value of $0.0001. The buyback will be made after the completion of the above-mentioned secondary offering. Notably, Baker Hughes will likely finance the share buyback with available liquidity and cash on hand.

General Electric’s Restructuring Plans

The above-mentioned transactions are part of General Electric’s portfolio restructuring plans.

In June 2018, the company communicated plans to transform itself into a high-tech industrial company — focused on Aviation, Power and Renewable Energy. It then decided to exit oil and gas by disposing of its 62.5% interest stake in Baker Hughes.

In November 2018, General Electric sold roughly 101.2 million shares of Baker Hughes (Class A). Also, roughly 65 million shares were bought back by Backer Hughes itself in the same month. As a result of the two transactions, General Electric’s shares in Baker Hughes declined from 62.5% to 50.4%.

In addition to lowering stake in Baker Hughes, General Electric divested GE Transportation to Wabtec Corporation WAB in February 2019. It will also sell its BioPharma business (part of the GE Healthcare segment) to Danaher Corporation DHR in the fourth quarter of 2019. Further, efforts are on track to lower exposure in GE Capital.

Zacks Rank, Share Price Performance and Earnings Estimates

General Electric currently has a market capitalization of $78.2 billion and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This company’s share price has gained 20.8% so far in 2019 compared with 18.3% growth recorded by the industry.

In the past 60 days, earnings estimates for 2019 and 2020 have been revised upward, reflecting positive sentiments about the company’s growth prospects. Currently, the Zacks Consensus Estimate for General Electric’s earnings is pegged at 63 cents for 2019 and 74 cents for 2020, suggesting growth of 1.6% and 1.4% from the respective 60-day-ago figures.

General Electric Company Price and Consensus


General Electric Company price-consensus-chart | General Electric Company Quote

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Westinghouse Air Brake Technologies Corporation (WAB): Free Stock Analysis Report

General Electric Company (GE): Free Stock Analysis Report

Danaher Corporation (DHR): Free Stock Analysis Report

Baker Hughes, a GE company (BHGE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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