General Electric says it’s not planning to acquire Baker Hughes, contrary to news reports. But shareholders shouldn’t be shocked by the idea that the industrial conglomerate might take a look at the $23 billion oil-services firm. Since the panic of 2008 sparked an existential crisis at GE, the $258 billion GE has been on a massive diet plan. Today the company led by Jeff Immelt is fit for an offensive.
Since the crisis, GE has offloaded some $200 billion of financial assets, in the process shedding its designation as a systemically important financial institution, subject to intense regulatory and capital requirements. It also sold its appliances unit to Haier of China and NBC Universal to Comcast.
In eyeing up Baker Hughes, GE says it’s only considering possible partnerships, but it isn’t a crazy acquisition target. The oilfield specialist agreed to sell itself to rival Halliburton before U.S. antitrust watchdogs scuttled the combination earlier this year. Though that left Baker Hughes in the lurch – and worth less than the $35 billion Halliburton had offered – it pocketed a huge $3.5 billion break fee. And since then, energy prices have mostly stabilized.
Investing in the oil and gas industry now would make sense if GE really is positive on the long-term outlook for the sector, as it indicated in its third-quarter earnings discussion last week. What it called a “challenging environment” in the short term is equally an opportunity to get in early before an upturn. GE’s energy unit, led by Lorenzo Simonelli, accounted for just $3 billion of revenue in the quarter, less than half the top line of GE’s power division.
It’s the power arm, under Steve Bolze, that is showing GE’s board and its investors that the company is ready to return more fully to the M&A game with its handling of last year’s $13 billion acquisition of Alstom. GE has more than doubled its expectations for cost savings to $3 billion a year.
No wonder other divisions might see the chance to get involved. GE is bidding for Swedish 3D-printer maker Arcam and snapped up Germany’s Concept Laser. These are relatively small deals, but it’s only a matter of time before GE’s oil and gas business joins the action in a bigger way.