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Baker Hughes: Should You Reinvest The Special Dividend?


  • In this article, I decided to look at the special dividend payed out by Baker Hughes, a GE Company.
  • In particular, I ask the question of whether investors should reinvest it into the business or take the cash and find something else.
  • Given my own investment approach, I would prefer to look elsewhere, but different types of investors could find reinvesting the distribution attractive.

Well, folks, the merger between Baker Hughes and the oil and gas segment of General Electric (GE) has, at long last, been completed. In the past, I wrote an article about the merger, when it was first announced, but since a great deal of time has passed and since the companies have provided some guidance as to what they believe the combined enterprise might look like, I figured it would be interesting for me to dig into the numbers and give my thoughts on what it all should mean for investors in the entity, which is called Baker Hughes, a GE Company (BHGE).

A look at the merger

Last year, shares of Baker Hughes took an initial tumble after news broke that the company would be combined with the oil and gas segment of General Electric. The transaction in question called for existing shareholders of Baker Hughes to own 37.5% of the combined entity, plus they would be entitled to a dividend with an aggregate value of $7 billion, payable in the form of a $17.50 per share distribution. General Electric would end up with the remaining 62.5% and, it seems, sold off its Water and Process Technologies business for $3.4 billion in cash to help facilitate the deal.

By combining both companies, the argument was that shareholders would see, by 2020, annual operating cost-savings worth $1.6 billion, which is certainly nothing to sneeze at. Not only consolidating dual positions but also through combining their size to generate economies of scale through other methods, it's a great way to create value. According to the latest press release on the matter, any shareholder who has not sold their units as of the close of business on July 3rd will have received the distribution of $17.50 per share on July 6th.


This article was written by

Daniel Jones profile picture

Daniel is an avid and active professional investor.

He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (9)

brew3242 profile picture

Although the structure of the deal is a bit different from what investors normally see, the fact is that GE owners are getting the same thing that happens in other mergers and acquisitions - presumed improving efficiencies in the market of oil services in this case. GE claims that the acquisition will be accretive to earnings.

But from a single shareholder perspective, you "receive" nothing. No cash, no additional shares, just the chance for GE to increase earnings.
ryanmartin8 profile picture
What is the impact to previous GE shareholders, do GE shareholders receive shares of BHGE or another form of compensation?
What are the tax consequences of the "special dividend" .. Is this a return of capital, and "tax free" via a lowering of the basis ? Or is it a "qualified dividend" and taxed at the 15-20% rate with no effect on basis ? Or will it be taxed at ordinary income rates ? Thanks
Call your broker for clarification. Should be a qualified div definitely not general income.
brew3242 profile picture
Per BHGE's investor relations:

The Special Dividend of $17.50 will be taxed as an ordinary dividend for US federal income tax purposes.

There is no impact to the cost basis.

For details please see pgs 8-9 of the filing on May 30: http://bit.ly/2uinV4U
brew3242 profile picture
From the May 30th SEC filing:
"With respect to the amount of the Special Dividend that is treated as a dividend for U.S. federal income tax purposes and paid to a former Baker Hughes stockholder who is a U.S. person, (i) if the U.S. person is not a corporation, such amount generally will be eligible for a reduced rate of taxation and (ii) if the U.S. person is a corporation, such amount generally will be eligible for the dividends-received deduction, in each case, if certain holding periods and other requirements are satisfied. Each such person should consult its tax advisors regarding the potential applicability of the statutory provisions regarding “extraordinary dividends” in light of its particular circumstances. "
I am a novice Investor with a DRIP strategy so please excuse my ignorance when it comes to a deal as complex as this. I have not seen any articles showing the GE Shareholder benefits of this deal. I see that Baker Hughes Investors received $17.50 per share in return for approving this deal. That being said for those fortunate enough to have owned 1000 BHI shares prior to the deal they could reinvest the $17500.00 they received and own 300 give or take more shares of the new company as of the close of business July 3rd EOD price. So again as a GE shareholder what is the upside for me short term and or long term. What am I missing?
joegillam profile picture
Don't see an immediate upside, Greenie, but you are missing money spent on this that could have gone to a dividend, stock buyback or debt reduction.

Joe In Georgia
so your an oil bull but you don't like the service companies? then you tote companies like WLL that have completely destroyed their shareholders. Halliburton hiring 100 workers a month in TX to try to keep up.
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