Baker Hughes, a GE company, and General Electric have signed a series of agreements meant to accelerate the orderly separation of BHGE from GE.
BHGE said on Tuesday that the agreements focus on long-term collaboration on critical rotating equipment, including aero-derivative and heavy-duty gas turbine technology as well as access to GE Digital’s software and tech.
Also, a series of agreements relates to operations and pricing within BHGE Digital Solutions’ Controls product line, pensions, tax matters, and intercompany services costs.
It is worth noting that all agreements have been approved by both BHGE and General Electric.
Lorenzo Simonelli, BHGE’s chairman, president, and CEO, said: “We are very pleased with the agreements we have reached with our partners at GE. Importantly, there will be no material impact to our outlook, strong balance sheet, or ability to generate cash. We remain well positioned to capitalize on the positive outlook for our industry and are focused on our top priorities of gaining share, improving margins and generating cash.”
GE Chairman and CEO, H. Lawrence Culp, Jr., added: “Earlier this year we announced our intent to pursue an orderly separation from BHGE. The agreements announced today accelerate that plan in a manner that mutually benefits both companies and their shareholders.”
According to their statement on Tuesday, BHGE and GE also agreed on a release from the lock-up restrictions under their stockholders agreement that previously prevented GE from disposing of shares of BHGE common stock until July 2019.
The companies agreed to cooperate on a proposed sale by GE of part of its stake into the market and to a concurrent repurchase of another part of GE’s stake by BHGE. Together, these transactions are expected to maintain GE’s stake in BHGE above 50%.
GE’s remaining stake will be subject to a 180-day lock-up prohibiting further sales into the market without consent from the underwriting banks.
Under the agreements, BHGE said that it had secured a long-term collaboration on critical rotating equipment with GE.
The two companies also agreed to form a JV to provide aero-derivative engine services and product management for use in the oil and gas and industrial spaces.
In parallel, BHGE also entered into long-term supply and distribution agreements with GE for heavy-duty gas turbine technology at the current pricing levels.
The agreements will become effective at the later of July 3, 2019, and the date on which GE and its direct subsidiaries cease to beneficially own, in the aggregate, more than 50% of the outstanding voting power of BHGE’s outstanding common stock (trigger date).
Also, BHGE and GE Digital have agreed to extend their exclusive supplier relationship for digital oil and gas applications.
Another important agreement will see the intercompany services fee that BHGE agreed to pay to GE as part of the merger reduce over time, beginning on January 1, 2019.
GE’s right to nominate five directors to BHGE’s nine-person board will continue until the trigger date, and GE will have a right to nominate one director to the BHGE board following the date until GE ceases to own at least 20% of the voting power of BHGE’s outstanding common stock.