BHGE Stock Sinking as General Electric Sells Off 50% Stake

BHGE stock

BHGE stock is down 7% today as its parent company, General Electric (NYSE:GE), sells off its majority stake in the oil field services company.

Baker Hughes (NYSE:BHGE), a General Electric Company, was merged with the struggling oil and gas division of General Electric in 2017 to create a new public firm, of which GE owned a 62.5% stake. However, the market was unreceptive of the merger, and BGHE shares have since declined more than 55%. GE has been planning to exit the merger for some time, having sold $4 billion USD worth of shares last year, and this process has been accelerated by recent speculation of accountancy fraud within GE.

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This round of sales will see GE sell off approximately 105 million BHGE shares, which could fetch as much as $3 billion USD and go some way to alleviating GE’s debt position. In a separate agreement, Baker Hughes will repurchase $250 million USD of its stock. BHGE stock is down 7.55% at the time of writing, while GE stock is up 2.4% to $9.36.

The deal could actually benefit BHGE stock in the long-term, given the recent reports regarding GE’s debt position. Last month, prominent fraud investigator Henry Markopolos published a report that alleged that GE’s cash and debt positions were considerably worse than the company reported. “GE’s true debt to equity ratio is 17:1, not 3:1, which will undermine its credit status,” Markopolos said. While GE has been signaled for significant turnaround efforts, perhaps Baker Hughes’s independence could shield it from further negativity.

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This sentiment was echoed by Stifel analyst Stephen Gengaro who said that despite BGHE shares being initially weakened on the offering, the news is positive as a major step towards removing the overhang of GE’s ownership, and he reiterated a Buy rating and $34 USD price target on BHGE stock.

As a result of the deal, the number of board directors GE can designate to the Baker Hughes board will be reduced from five to three; however, Baker Hughes has said it anticipated allowing all five of GE’s current designees to continue in their roles.

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