Tags: GE | a Buyer Once More | Signs Energy | Finance Deals

GE, a Buyer Once More, Signs Energy, Finance Deals

Thursday, 07 Oct 2010 09:24 AM

General Electric Co. marked its return to the takeover track with its first major deals since the start of the financial crisis, for a maker of engines used in oil and gas production and a credit card portfolio.

The largest U.S. conglomerate reached a $3 billion deal for Dresser Inc., which makes gas engines used in oil production and mining, and bought a $1.6 billion portfolio of retail credit cards from Citigroup Inc., in moves intended to boost its energy and GE Capital businesses.

But the world's largest maker of jet engines and electricity-producing turbines said another target, British oilfield services Wellstream Holdings had spurned a $1.2 billion (755 million pounds) takeover approach.

It was the latest sign that corporate America, which is sitting on huge cash reserves, is growing more willing to spend money on takeover deals, even as it remains reluctant to hire more workers. The private sector unexpectedly cut jobs in September, government data showed, suggesting there is no quick end in sight to the problem of stubbornly high unemployment, which is slowing the economy's recovery from its worst downturn since the Great Depression.

"GE is playing offense, not just in energy but in financial services and in our other businesses," said John Krenicki, a GE vice chairman who serves as chief executive of the company's Energy Infrastructure division.

The company, which has said it could spend up to $30 billion on takeovers over the next few years, sees opportunity for more acquisitions in sectors including energy, healthcare and financial services, Krenicki said in an interview.

The deal-making marks a change in stance at GE, which has been hard hit by the credit crisis and recession and spent much of the past few years looking for ways to pare back its hefty finance arm. It also reached a deal to sell a majority stake in its NBC Universal media business to No. 1 U.S. cable operator Comcast Corp., which is due to close later this year and is the source for some of the cash in GE's M&A budget.

"It looks like they used this period of time when they were working on cleaning up the GE Capital and getting the NBC Universal thing done to think about the next moves," said Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors, which holds GE shares. "It's nice to see their focus wasn't completely on the crisis du jour."

GE shares rose as much as 3 percent to $17.00, the highest level they have reached on the New York Stock Exchange since May. Over the past year they have risen 4 percent, lagging the 14 percent growth of the Dow Jones Industrial Average, of which GE is the sole remaining original member. The shares were still up 2.2 percent on Wednesday afternoon.

ENERGY MOVE WELCOMED

Investors and analysts welcomed the deal for Dresser, an Addison, Texas-based company that last year earned about $318 million on $2 billion in revenue. Dresser makes gas engines that are used in oil production, in mines and in other commercial and industrial applications.

The deal boosts GE's exposure to global commodity and energy markets, which analysts said stand to expand in the years ahead as the world's growing population demands more resources.

GE is buying Dresser from a consortium of private equity companies including the Carlyle Group and Riverstone.

It will sit in GE's energy unit, which last year generated more than a third of the company's profit and brought in $37.2 billion. It makes equipment ranging from gas and coal-fired electric plants, to solar panels and wind turbines, to gear used in oil and gas production.

"Strategically, we view the deal as coherent," said Deutsche Bank analyst Nigel Coe.

GE expects to boost the portion of Dresser's sales that is generated outside North America from the current 60 percent level and to expand its maintenance business, which can offer a steadier stream of revenue even in tough economic times when companies pull back on equipment purchases, Krenicki said.

The Fairfield, Connecticut-based company was less successful in another energy bid. It said that Wellstream Holding had rejected its takeover approach, but did not rule out making another run at the company.

"GE reserves the right to make an offer on less favorable terms," the company said in a statement. "There can be no certainty that it will take any further action."

Krenicki declined to comment directly on Wellstream, but indicated that GE saw no shortage of targets in the sector.

"The energy business is a vast business, we've got lots of options," he said.

REFOCUSING GE

CEO Jeffrey Immelt has acknowledged that he allowed GE Capital to grow "too big" in the years leading up to the financial crisis and said he aims to focus the company more closely on its core industrial operations -- which in themselves are vast and diverse, encompassing everything from making lightbulbs to jet engines and a more stable finance arm.

While the company will have a large M&A budget in the coming years, it does not plan to pursue large deals, instead focusing on companies worth $1 billion to $3 billion and closely related to existing GE operations, officials said.

The payoff of the company's latest round of deals is yet to be seen, said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, which holds GE shares.

"Are they going to get it right? Are they going to pay the right price? It depends how eager they are to add on assets," Klein said.

Sorrentino said he took heart in the fact that the investments in energy and credit cards came in sectors that have declined in value over the past year.

"On some of the things they sold they have been on the receiving end of that punishment, where it was a buyer's market," Sorrentino said. "Now that they're in the driver's seat on that, hopefully they got pretty well schooled and are much tougher negotiators when they're spending the shareholders' dollars."

© 2017 Thomson/Reuters. All rights reserved.

   
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General Electric Co. marked its return to the takeover track with its first major deals since the start of the financial crisis, for a maker of engines used in oil and gas production and a credit card portfolio. The largest U.S. conglomerate reached a $3 billion deal for...
GE,a Buyer Once More,Signs Energy,Finance Deals
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2010-24-07
Thursday, 07 Oct 2010 09:24 AM
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