GE no longer wants a hasty divorce from Baker Hughes
General Electric isn’t planning a hasty divorce from oil services giant Baker Hughes after all.
GE was considering a sale of its majority stake in Baker Hughes because it is running low on money.
But the company reversed course on Wednesday and said that Baker Hughes won’t be part of its broader plans to get rid of at least $20 billion of businesses in the next few years.
A sale would have been stunning because GE had only completed a combination of its oil and gas business with Baker Hughes months earlier. It also would have forced GE to get around restrictions that prevented it from selling the stake before mid-2019.
“At this point in time, we have no intent to change anything” before the restrictions lift, Jamie Miller, GE’s chief financial officer, told analysts at the Barclays Industrial Select Conference.
“We like that combination a lot. Managing is doing a very nice job executing in the portfolio and we have a lot of confidence in them,” said Miller, who also serves as a Baker Hughes director.
Shares of Baker Hughes soared as much as 7% on the news before closing up just modestly. The stock remains down 15% this year following a plunge of 51% in 2017.
In November, GE CEO John Flannery said he had asked a board committee to evaluate “our exit options on Baker Hughes.” He said the “problem and challenge that we have in this business is the cyclicality and the commodity nature of the business.”
Decades of bad decisions have left GE in a cash crisis that has forced management to halve its dividend, slash jobs and put long-held businesses up for sale. GE is searching for buyers for its iconic lightbulb business as well as the century-old railroad unit.
Last month, Flannery signaled GE is even exploring an outright breakup of a company that was once America’s most successful conglomerate. Despite years of shrinking itself, GE still makes everything from jet engines and power plants to MRI machines.
GE’s shares lost almost half their value in 2017 and crashed further earlier this year after the company took a $6.2 billion hit due to insurance problems in its finance unit.
GE’s insurance troubles led Deutsche Bank to predict in January that the company may need to raise money by issuing more stock. GE hasn’t had to take such drastic action since the 2008 financial crisis.
However, GE reiterated on Wednesday that it’s not planning to sell stock, a move that would dilute the value of the shares people currently own.
“We’ve gone through fairly deep dives into the different elements of the company and we have no plans for an equity raise,” Miller said. “It’s not been discussed.”
Miller pointed out that GE ended 2017 with $11.2 billion of cash on the balance sheet, exceeding the company’s expectations.
Another trouble spot at GE is the company’s $31 billion pension shortfall, the largest among S&P 500 companies. The pension nightmare has been driven by years of attention as well as historically low interest rates that have driven up pension liabilities around the world.
Miller noted that GE’s pension situation has improved due to the recent interest rate shock that has spooked the stock market. She estimated that each 0.25 percentage point increase in interest rates reduces GE’s pension deficit by $2.2 billion.
“That actually helps us from a pension perspective,” Miller said.