A General Electric Co. (GE) logo sits on display outside the GE Aviation Czech s.r.o. aircraft turboprop engine plant in Prague, Czech Republic. (Photographer: Martin Divisek/Bloomberg)

GE Surges on $4 Billion Plan to Speed Cut to Baker Hughes Stake

(Bloomberg) -- General Electric Co. jumped as Chief Executive Officer Larry Culp accelerated plans to pare the company’s stake in Baker Hughes with a deal that would raise about $4 billion at current prices.

GE will sell as many as 166.2 million shares in the oilfield-services provider through a secondary offering and a stock repurchase by Baker Hughes, the companies said in statements Tuesday. GE will retain about half of the Houston-based company, at least for now.

Culp’s decision punctuates GE’s pivot away from the oilfield businesses that had been championed by former CEO Jeffrey Immelt, who spent $10 billion on deals in the decade through 2013 and agreed in 2016 to merge GE’s crude-related assets with Baker Hughes. Culp is raising cash amid mounting pressure on GE to reduce debt, as the company’s shares still languish near a nine-year low and the cost of insuring its bonds against default has jumped.

GE Surges on $4 Billion Plan to Speed Cut to Baker Hughes Stake

“We like seeing GE’s new CEO Larry Culp hasten the pace of the company’s portfolio breakup to generate sale proceeds to de-lever the balance sheet,” Deane Dray, an analyst at RBC Capital Markets, said in a note to clients. “This is consistent with GE’s messaging that it has roughly $60 billion of potential sources of liquidity.”

Culp took over six weeks ago from John Flannery, who succeeded Immelt in August 2017.

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GE advanced 7.8 percent to $8.61 at the close in New York, the biggest gain in more than four months. The shares had tumbled 54 percent this year through Monday, the third-biggest drop on the S&P 500 Index.

Baker Hughes gained less than 1 percent to $23.80 at the Tuesday close.

Pricier CDS

The cost to insure against a default by GE for five years climbed to 199 basis points, according to credit-default swaps prices from CMA. That’s almost double what it cost just two weeks ago, and the kind of level that hasn’t been seen for the company since the waning days of the global financial crisis.

Yields on some of GE’s bonds have also reached levels that are in line with junk-rated debt, Bloomberg Barclays index data show, even though GE’s credit rating is still three notches above speculative grade. The company has a Baa1 rating from Moody’s Investors Service and an equivalent BBB+ from S&P Global Ratings and Fitch Ratings. All carry a stable outlook.

The Baker Hughes deal furthers GE’s push to streamline its portfolio and focus on aviation, power-generation equipment and renewable energy. But the timing is far from optimal, with the pact coming after a month of declines in oil prices. Baker Hughes closed Monday at its lowest price in 16 years.

The companies agreed on a release from restrictions that previously prevented GE from disposing of shares of Baker Hughes until next year. GE, based in Boston, currently holds a 62.5 percent stake in Baker Hughes. Following the deal to whittle the holding, GE’s remaining stake will be subject to a 180-day lock-up prohibiting further sales into the market without consent from the underwriting banks.

“This starts the long-term separation,” said Luke Lemoine, an analyst at Capital One. “Given the dynamics around GE, they definitely want to see it done.”

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