How to Land a $17.50 per Share Bonus

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Oil & Gas

It was truly a happy Halloween for Baker Hughes Inc. (NYSE: BHI) shareholders. Their treat? A $17.50 special dividend for every share they own.

Even better, General Electric (NYSE: GE) is footing the bill. It’s contributing $7.4 billion to pay the dividend.

That’s because the two companies just announced a new deal that has investors drooling…

GE is merging its oil division with Baker Hughes to create a $32 billion oil services company. When all is said and done, GE will own 62.5% and Baker Hughes shareholders will own 37.5% of the new company.

The merger of the two companies creates a new world-class oil field technology company. The “New” Baker Hughes, as GE currently calls it, will operate in more than 120 countries.

Investors who want to get in on the deal still have plenty of time. While the boards of directors of both companies have approved the transaction, it’s not expected to close until sometime in mid-2017.

Here’s the Deal

GE’s been keen to build up its oil and gas business. So the Baker Hughes deal is a perfect addition to GE’s suite of existing energy businesses.

GE CEO Jeff Immelt believes the transaction will add $0.04 to GE earnings per share in 2018 and $0.08 in earnings per share by 2020. The new company will be comparable in size to (and compete with) Schlumberger Limited (NYSE: SLB).

That said, some analysts think the deal has potential pitfalls. The first is it’s taking place against a backdrop of uncertain oil prices.

There’s some truth to that. America’s oil and natural gas exploration and production companies have shut down two-thirds of their drilling rigs over the last several years.

That had a ripple effect in the oil and natural gas service industry. Until this deal, that was primarily the territory of Schlumberger and Halliburton Company (NYSE: HAL).

The downturn forced Schlumberger and Halliburton to lay off 85,000 workers over the past two years.

More than 100 service companies in North America have had to file for bankruptcy protection during the same period. And in just the last six months, 48 of them have gone under.

But the ship is slowly turning around. When oil prices stabilized in late summer, U.S. E&P companies slowly started to deploy more drilling rigs.

In addition, they’ve deployed new technology. That’s made a big difference in their bottom lines.

And a lot of that technology has come from Baker Hughes and GE. So this deal is a winner for both companies and their investors, too.

The other potential hang-up is whether government regulators will approve the new deal.

In 2014, Baker Hughes attempted to merge with Halliburton. The Justice Department shot that one down.

I believe this deal has a very good chance of government approval. That’s because it does not pose any antitrust issues, as there is little overlap between the two businesses.

Even better, the cost savings for the new company alone justify the merger. This is true even if oil prices stay where they are.

I wanted to bring this deal to your attention because of the special dividend. Getting in on this new publicly traded partnership is easy.

All you have to do to be eligible for the dividend is own shares of the current Baker Hughes. It’s a superb time to be in the energy business.

Good investing,

Dave