General Electric Company (GE - Free Report) yesterday announced that it along with GE Oil & Gas US Holdings IV, Inc., GE Oil & Gas US Holdings I, Inc. and GE Holdings (US), Inc. are offering 115 million shares of Baker Hughes, a GE company to the public for purchase. This marks an increase from 105 million shares of Baker Hughes offered a day before.
Concurrently, General Electric noted that Baker Hughes will buy back $250 million of its shares from General Electric and others through a privately negotiated transaction.
We believe that the news lifted market sentiments for General Electric, evident from roughly 4.5% growth in the share price in the past two days. On the contrary, the divestment news seems to have lowered Baker Hughes’ shares by roughly 7.8% during the same time frame.
Inside the Headlines
As noted, the secondary offering includes Class A common stocks of Baker Hughes, with each having $0.0001 par value. The shares have been priced at $21.50 per share.
Also, selling stockholders have given underwriters the option to purchase an additional 17.25 million shares of Baker Hughes within 30 days. Notably, the underwriters were earlier given an option to purchase 15.75 million shares of Baker Hughes.
In addition, the stock buyback by Baker Hughes will comprise Class B shares, with each having par value of $0.0001. Along with this, the company will sell the same number of membership interest in Baker Hughes, a GE company, LLC. 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.
Subject to the fulfillment of closing conditions, the offering will be completed on Sep 16, 2019. General Electric and others anticipate the net proceeds of roughly $3 billion from the offering and buyback. This is contingent upon the full exercise of option provided to the underwriters, excluding which the net proceeds can be roughly $2.7 billion. The funds raised will help General Electric to reduce debts and thus improve the leverage position.
As a result of the transactions, General Electric will lose its controlling shares in Baker Hughes, falling from roughly 50.4% at the end of the second quarter of 2019 to 38.4%. 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.
General Electric will now deconsolidate Baker Hughes and believes that the initiatives to lower Baker Hughes’ stake will impact its earnings.
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 - Free Report) in February 2019. It will also sell its BioPharma business (part of the GE Healthcare segment) to Danaher Corporation (DHR - Free Report) in the fourth quarter of 2019. Further, the company’s 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 $79.8 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 23.7% 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