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General Electric (GE) Inks Series of Agreements With BHGE

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General Electric Company (GE - Free Report) and Baker Hughes, a GE company (BHGE - Free Report) recently signed a set of long-term agreements (the “Agreements”) to amend the technological and commercial relationship with each other. The Agreements will be focusing on collaboration of critical rotating equipment between the companies, ensure access of GE Digital to Baker Hughes, and a series of modifications relating to pricing and operations of BHGE Digital Solutions.

Additionally, GE Power’s business unit — GE Power Digital — has signed a deal with PPL Electric Utilities, a business arm of PPL Corporation (PPL - Free Report) . Per the deal, both companies will test and develop software that controls and manages electricity from stored, as well as renewable energy sources.

The Agreements

General Electric and Baker Hughes have clearly elaborated major elements of the long-term alliance on critical rotating equipment. Under this regime, both companies have decided to form a joint venture (JV) which will provide aero-derivative product management and engine services across the industrial and oil & gas end-markets. Baker Hughes will continue to benefit from the jet engine technology on grounds of this new JV. Moreover, the JV will form a strategic partnership and supply agreement with GE Aviation, moving ahead. In addition, the companies have inked a long-term distribution and supply deal for providing heavy-duty gas turbine technology at the current pricing levels.

The Agreements also permits access to GE Digital technology & software. Both GE Digital and Baker Hughes have agreed to extend their existing supplying deal for digital oil and gas applications.

Additionally, both companies have signed a series of agreements relating to pricing and operations of BHGE Digital Solutions’ pensions, Controls product line, intercompany service costs and tax matters. Under this, General Electric and Baker Hughes have decided to maintain the existing pricing levels and operations of the Controls product line for the next four years. Furthermore, the intercompany service fee to be paid by Baker Hughes to General Electric will be trimmed, going ahead, beginning Jan 1, 2019. Both companies have revised the existing terms of their shareholders agreement as well. Nonetheless, the active Tax Matters Agreement between the companies will remain the same.

Per the business portfolio-restructuring program rolled out this June, General Electric has announced its intentions to exit the company’s oil and gas businesses by disposing 62.5% interest stake in Baker Hughes. The company noted that the aforementioned approved Agreements will aid in accelerating this plan, ensuring benefits of both companies. The companies have also decided to let go the lock-up restrictions within their shareholders agreement that prevented General Electric from disposing of shares of Baker Hughes common stock till July 2019.        

PPL Electric Utilities Deal Insights

Per the recently-signed deal, General Electric and PPL Electric Utilities will be able to improve the quality of grid management with Distributed Energy Resources (“DER”). DERs are the local electricity storage, generation and other energy resources, allied with grid at the distribution level. Elevated demand for renewable energy resources (like solar and wind) has enhanced the popularity of DERs within make and grid network operations of utility companies like PPL Corporation. Per the agreement, PPL Electric Utilities will adopt General Electric’s DER Orchestration and amalgamate it with GE Power’s Advanced Distribution Management Solutions.

Our Take

General Electric intends to become a high-tech industrial company on the back of its business portfolio-restructuring program. In sync with this, the behemoth trimmed its dividend from 12 cents per share to a penny, in a bid to improve the company’s cash position. In addition to this, a decision is taken to reorganize the Power business into two separate business units.

The company pulled off a positive average earnings surprise of 3.53% in the past four quarters. Nonetheless, a disappointing Power business remains a key cause of concern for General Electric.

Over the past three months, shares of this Zacks Rank #5 (Strong Sell) stock have lost 29.5%, wider than the 9% decline recorded by the industry it belongs to.

 

Macquarie Infrastructure Company (MIC - Free Report) is another company operating in the same space. The company currently sports a Zacks Rank #1 (Strong Buy) and has generated positive average earnings surprise of 3.85% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

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