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GE (GE), which fought to repair its bloated balance sheet, announced Tuesday the signing of a complex deal to sell up to 166 million shares to oil services company Baker Hughes (BHGE). Transactions would generate about $ 4 billion at current prices.
GE had to reach an agreement to escape a period of deadlock preventing the company from getting out of Baker Hughes' investment until July 2019.
Culp has pledged Monday to act with "a sense of urgency" in order to address GE's debt problem. "We have a lot of weight," Culp told CNBC. "We have several options to reduce this effect over time."
In a statement released on Tuesday, Culp said the Baker Hughes agreements "accelerated" the company's plan to pursue the orderly separation of Baker Hughes. GE said the process could take several years.
Buy high, sell low
GE has accumulated a mountain of debt in part because of a series of mis-synchronized transactions. For example, GE's 2015 takeover of Alstom's food business proved to be a disaster, plunging the company deeper into fossil fuels, just as renewable energy was starting to gain market share.
The sale of Baker Hughes may not help GE's reputation for high purchase and low sales. Think Baker Hughes was trading around $ 38 when GE, under former CEO Jeff Immelt, agreed to merge its oil and gas activities with the oilfield services company. Today, Baker Hughes is trading around $ 24.
The oil world has gone through a historically difficult month. Fears of oversupply sent crude oil crashing into a bear market last week. US oil prices have dropped 11 consecutive days, the longest run of losses since futures futures trading in 1983. That's bad news for oil services companies like Baker Hughes, who sell tools and technologies used by oil and gas exploration and drilling companies.
John Inch, an analyst at Gordon Haskett, described the GE Baker Hughes deal as a "fire sale".
"We believe this decision highlights the fact that liquidity issues remain at the heart of GE's concerns," Inch wrote to its customers on Tuesday, "despite assurances from the company and analysts to the contrary."
Under the terms of the agreement announced Tuesday, GE and Baker Hughes signed a series of long-term trade agreements that would have expired with the blockage in 2019. These agreements include the creation of a joint venture and a joint venture. agreement for Baker Hughes on the purchase of GE's gas turbine. technology at the current price.
The transactions imply that GE sells up to 101 million shares of Baker Hughes. Baker Hughes has agreed to buy back approximately 65 million shares in GE.
These sales should keep GE's stake in Baker Hughes just above 50% at the moment. The remaining interest will be subject to a lock-up period of 180 days which will preclude any subsequent sale unless the subscription banks consent.
In addition, GE has announced that it will transfer some British pension debts to Baker Hughes, but none of GE's major US retirement plans will be included. GE displays one of the highest retirement deficits of the S & P 500 due to years of inattention and extremely low interest rates.
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