Baker Hughes is ‘glad’ to be able to buy back shares GE is selling

The shares of Baker Hughes Co. rose Friday after the oil products and services company announced plans to repurchase shares for the first time in a year, aiming to help suck up what General Electric Co. sells.

Baker Hughes said the board of directors has authorized the company to repurchase up to $2 billion in shares through Baker Hughes Holdings LLC (BHH). Based on current prices, that could represent about 9% of the outstanding shares.

The stock BKR,
climbed 0.8% in morning trading to offset weakness in its peer group and the broader market as exchange-traded fund SPDR Energy Select Sector XLE,
fell 1.7% and the S&P 500 index SPX,
0.5% losses.

The stock is now up 6.6% since it reported its second quarter results before the July 21 opening.

If the company buys back shares in the current third quarter, it would be the first time since the third quarter of 2020, according to filings with the Securities and Exchange Commission.

“We are pleased that Baker Hughes’ strong balance sheet and robust cash flow profile, which not only enables us to return value to shareholders through our regular quarterly dividend and share repurchases, but also enables us to invest for growth and position for new frontiers to lead the energy transition”, says CEO Lorenzo Simonelli.

As part of the buyback program, Baker Hughes and BHH are authorized to enter into an agreement with General Electric GE,
which is currently the fourth largest shareholder according to FactSet, for BHH to buy shares of GE, the proceeds of which will be distributed to Baker Hughes.

Read also: GE Shares Jump After Surprising Earnings Beat Surprising Swing To Positive Free Cash Flow.

FactSet, MarketWatch

In July 2020, GE said it was launching a program to “fully realize” its stake in Baker Hughes in about three years. At the time, GE said the fair value of its stake in Baker Hughes was $5.91 billion.

Earlier this week, GE revealed that it raised $1.0 billion from the sale of Baker Hughes stock in the second quarter and planned to sell approximately $1.3 billion worth of stock in the current third quarter.

On July 21, BofA Securities analyst in Baker Hughes’ post-earnings conference call with analysts asked Chief Financial Officer Brian Worrell, according to a FactSet transcript, “why not make a buyback to partially offset the ongoing drag on (our) stocks.” from GE”, which continues to sell its stake?

Worrell responded by saying that in addition to small-scale acquisitions and new energy investments, “equity buybacks can certainly be an attractive part of the capital allocation portfolio view.”

Baker Hughes stock is up 2.4% so far, while the energy ETF is up 30.2% and the S&P 500 is up 17.1%.