By Thomas Gryta 

General Electric Co. said it reached a deal to sell part of its stake in oil services company Baker Hughes, providing around $4 billion in cash for the struggling conglomerate.

GE will sell up to 101 million shares in a secondary offering to the market and Baker Hughes has agreed to repurchase about 65 million shares from its controlling shareholder. The deal followed talks between the two companies to allow GE to sell about six months sooner than previously agreed.

Shares of GE rallied on the news, gaining 8% to $8.61 after tumbling in recent days to their lowest levels in years. However, GE's bond prices fell sharply in Tuesday's session and the cost of buying protection against a default by the once-AAA rated company continued to rise.

GE had told investors in June it planned to sell down its 62.5% stake in Baker Hughes as part of a restructuring plan to raise cash and break up the conglomerate. Investors have worried about the company's high debt load and losses in its core power division. GE has also agreed to sell its locomotive business and spin off its health-care unit.

GE had been prevented from selling its stake in Baker Hughes until July 2019 as part of the agreement when GE combined its oil and gas business with Baker Hughes. GE said it plans to maintain a stake above 50% in Baker Hughes after the transactions.

The agreement with Baker Hughes announced Tuesday marks the first major portfolio move by CEO Larry Culp, who took over on Oct. 1.

In an interview with CNBC on Monday, Mr. Culp sought to ease concerns about GE's liquidity, saying the Boston-based company has access to about $40 billion in credit lines in place and is deleveraging the balance sheet through asset sales. GE has about $100 billion in debt outstanding, including debt from its GE Capital financing arm.

The price of GE's widely traded 4.4% bond due 2035 fell Tuesday about 2.5% to 82 cents on the dollar, with more than $433 million face amount of the debt changing hands, according to data from MarketAxess. The company accounted for three of the four most actively traded corporate bonds in U.S. debt markets, the data showed.

As the price of GE's bonds fall, their yields rise, pushing up the cost the company must pay when trying to borrow new funds. Bonds issued by GE Capital that come due in January 2020 now yield about 4.6%, up from 3.3% in August.

All three major credit rating firms, S&P Global Ratings, Moody's Investors and Fitch Ratings, have downgraded their ratings on GE in recent weeks, leaving the company three notches above junk.

The cost of protecting against a default on $10 million GE debt through credit default swaps has roughly tripled in the past two months to about $199,000, according to data from MarketAxess.

Baker Hughes said it would spend up to $1.5 billion on the share repurchases from GE, which the oil services company said would be part of its existing buyback program.

Shares of Baker Hughes rose 20 cents to $23.84 on Tuesday, giving the company a market value of about $26 billion.

GE's remaining 50.5% stake in the Houston-based company will be subject to a 180-day lockup period, the companies said, although GE has told investors it eventually plans to fully separate its ownership of Baker Hughes.

By July 3, 2019, or whenever GE's voting stake in Baker Hughes falls below 50%, GE has agreed to reduce its board representation to one director. GE currently nominates five of Baker Hughes's nine directors.

--Matt Wirz contributed to this article.

Write to Thomas Gryta at thomas.gryta@wsj.com

 

(END) Dow Jones Newswires

November 13, 2018 17:29 ET (22:29 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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