Wanted to get you monkeys thoughts on the GE / Baker Deal?
I am a total fanboy of both companies, so I may be a little bit biased. Also, I am bent towards energy so although I think it was the right move for GE I am way more concerned with the Newco's dominance in the NAM onshore and Global OFS markets.
Deck can be found here: http://seekingalpha.com/article/4017106-ge-acquir…
Key takeaways for me.
1) a)The $17.50 special Dividend is not much compared to the 70% dilution b) However, based on some back of the napkin calculations I consider GE oil & gas (without projected synergies) to be worth ~ $10 - $20 BB. ... Meaning deal is accretive to BHI shareholders ~ $55 / Share c)) It was pretty nice of GE to take the debt at Parent Co level.
2) LNG Exposure & Manufacturing - I am totally bullish on LNG. This acquisition provides BHI a major competitive advantage over SLB and HAL, as it will compete in the LNG space where the other two do not. Also, Baker/GE will have strong advantages in the manufacturing segment of Oil Field Service Cos. While BHI has competed well in services such as pressure pumping, the GE manufacturing base gives the BHI another major competitive advantage, albeit in a lower margin segment. My question then becomes will the Service competitors decide not to continue buying GE materials for their service operations, and if so how big of a dent will this represent
3) OFS vs Energy Value Chain Services (EVCS?) - GE has exposure throughout the petrochemical value chain, albeit small compared to their upstream customers. What opportunities does this unlock for BHI to compete as a service company in the midstream / downstream space? Future Construction / Engineering acquisitions on the horizon?
4) Typical M&A Bullshit - The presentation assumes ~$5.1 BB PV value of synergies to BHI shareholders. Obviously crock of shit, but what are your thoughts on reasonable synergies (if any). Also, they are projecting 60% of total industry spend by 2060!!! That seems totally ridiculous to me, but when manufacturing operations are considered, maybe its not so aggressive? Thoughts on these projections?
5) Strategic Synergy - both these companies are Innovative. There have been a few recent studies in the Journal of Finance (among other respected, peer-reviewed publications) which discuss the long-run value of companies which invest heavily in innovation. Coupled with a bearish ("lower-for-longer") price environment, I see technological innovation as the driving factor for Service company survival. Producers have been pretty successful at pushing losses down to service providers, and the new BHI seems extremely well positioned to adapt to these changes and win the eventual NAM onshore recovery, and perhaps even global onshore.
6) Regulatory Burdens (Edit): Finally, what will the DOJ have to say about this? I think GE is different enough from BHI for the reasons listed above to allow such a merger, but there are others with the opposing view. Also, does 100% how the transaction structure affects the ruling,.
Anyway, just one monkey's musings. Interested to hear your thoughts.
Looking at you @RedRage"
Parents have a stake in BHI. The merger is complete bullshit. Jeffries did a calculation where if you calculate the new enterprise value , GE effectively bought the company for 24 billion. The deal was bullshit
CAn you please provide that research if you have it?
Also, its not so cut and dry as a $24 BB acquisition, since BHI shareholders have upside participation. So while yes, it was an awesome deal for GE, it wasn't necessarily bad for BHI in terms of purchase price. But yeah I would argue that the market agrees with you. 8% pop on rumor 9 % decline on announcement, with GE popping a couple percentage points as well.
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