Almost as a reconsideration in launching the merger of its gas and oil segment with Baker Hughes, General Electric Company (NYSE:GE) reported it would sell its Water business. Both the oil and gas operations and water businesses have been substandard for company, but dumping the water segment may be a matter of the count of losers that CEO Jeffrey Immelt can explain to activists. Water might have worked in the long run, however with the company betting on oil, water fails to fit into the mix.
The highlights
Steven Winoker, a Bernstein analyst, said that the agreement with Baker Hughes is positive strategically for General Electric shareholders. It is an attractive arrangement for company, noting that without seeking a full cash amount for BHI, the new firm offers GE investors with increased upside to an oil price recovery. However, Evercore analysts report that the deal likely offers an avenue for the company to promote the prevalent acceptance of its Predix industrial internet base, a focal point of the firm’s long term plan.
Moody’s has maintained its ‘A1’ credit rating for General Electric, stating increased exposure in gas and oil primarily is credit negative but it will be beneficial over an extended period. For the company, which only lately exited the financial services unit, going deeper into the oil market by merging with BHI, appears like a risky move.
Moody’s Investors Services stated that they are not bothered about the risk long-term. It added that it’s maintaining ‘A1’ rating, a higher level of investment grade. The caption of the report confirms it all. Russell Solomon, the lead analyst for General Electric mentions that Baker Hughes and the company are bringing together mostly different yet matching assets that will end in an industry pioneering integrated oil field services and equipment firm.
However, Solomon notes that the development is primarily credit negative for the remaining General Electric industrial firm, provided the leveraging bearing of the concurrent loss and incremental debt funding of the earnings unit from company’s earlier wholly-owned gas and oil business.
THE MORNING REPORT
Start your workday the right way with the news that matters most.
Your information is 100% secure with us and will never be shared Disclaimer & Privacy Policy
