GE seeks boost from Baker Hughes merger

Bloomberg

With the enthusiasm around its industrial transformation stalled, General Electric Co. is hoping for a boost from an oil megadeal that has already won the backing of the activist investor Nelson Peltz. Chief Executive Officer Jeffrey Immelt is merging the company’s oil and gas unit with Baker Hughes Inc. to create a behemoth capable of both weathering the slump in crude prices and capitalizing on a recovery. With $32 billion in sales and a more robust offering of products and services, the merged entity could position GE to compete more effectively as it deepens its bet on the energy markets.
While a number of Wall Street analysts had cut their outlooks for GE in recent weeks, the Baker Hughes transaction could be what’s needed to regain the momentum that sent shares to a 23 percent gain in 2015.
“Even the bears got to like this deal,” Scott Davis, an analyst at Barclays Plc, said in a note to clients. For GE, the deal offers a chance to quiet skeptics questioning whether the Boston-based company can turn oil into a marquee business after wagering on the market with a series of acquisitions just before a historic slump. GE’s 2015 stock rally — fueled by a major investment from Peltz’s Trian Fund Management LP and a corporate overhaul shedding finance assets in favor of equipment manufacturing — has fizzled this year.
“This was the right way to create value for everybody,” Immelt said in a telephone interview. “It’s a way to create the synergies and the market opportunities today, to weather the cycle wherever it goes, as a stronger enterprise. It gives the Baker investors a substantial premium. It gives the GE investors the bet on our ability to execute on the synergies.”