Late Tuesday afternoon, Baker Hughes, a GE Company (NYSE: BHGE), announced a secondary offering of 105 million shares of Class A common stock. All the shares are being sold by General Electric Co. (NYSE: GE), which owns just over 50% of the oil field services company and will retain all the proceeds from the offering.
Baker Hughes also has agreed to repurchase $250 million in Class B stock from GE, along with an equal amount of “associated membership interests” in Baker Hughes, a GE Company, LLC. Baker Hughes said it plans to fund the buyback from cash on hand and other liquidity sources.
The offering effectively puts an end to GE’s ownership of its controlling stake in Baker Hughes, reducing GE’s voting power in all classes of Baker Hughes stock to less than 50%. GE will retain one designated member of the board while two board members will resign and two others will remain on the Baker Hughes board “but not as GE designees.”
Thus ends another ill-timed play by former GE CEO Jeff Immelt who merged Baker Hughes with GE’s own oil and gas division in 2017. Following the merger, GE owned 62.5% of Baker Hughes and was prohibited from selling its stake until July of this year. But as GE’s need for cash became more urgent, the company sought and received approval from Baker Hughes to begin selling its stake earlier while still retaining control.
Thus, in November of last year, Baker Hughes repurchased some 65 million shares from GE and GE sold approximately 101 million shares in a secondary offering, reducing its stake in Baker Hughes to 50.2%.
More important to many GE investors is what the Tuesday announcement means in terms of a further writedown of Baker Hughes’s value to GE. In July, GE said its best estimate of the looming charge was $7.4 billion related to the merger.
Last month, whistleblower Harry Markopoulos said that GE was maintaining its controlling stake in Baker Hughes solely to keep from having to take the massive charge. By lowering its stake in Baker Hughes, GE moots at least that part of Markopoulos’s claim.
Absent an oil price increase stabilizing at more than $60 a barrel, the merger with Baker Hughes never really paid off for GE. Since July 2017, Baker Hughes stock has tumbled by about 43%, while GE stock is down more than 70% over the same period.
Baker Hughes stock closed down about 0.3% on Tuesday at $24.11 and traded down about 4% in the after-hours session. The shares traded down about 3.8% in Wednesday’s premarket session at $23.20. The stock’s 52-week range is $20.09 to $34.48, and the consensus 12-month price target is $29.67.
GE stock closed up more than 2% on Tuesday at $9.14, and it traded up a penny in Wednesday’s premarket. The stock’s 52-week range is $6.40 to $13.25, and the consensus price target is $10.76.