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Barrons / Biz - Money

GE, Baker Hughes Get a Breather

ValueAct Capital has reduced holdings in Baker Hughes and may have sold all its shares.

ValueAct Capital Management has backed off.

Three years ago, in late 2014, the activist investor had begun to accumulate shares in the predecessor company to the awkwardly named operating partnership Baker Hughes , a GE Co (ticker: BHGE). It was simply “Baker Hughes” before merging with General Electric ’s (GE) oil and gas operations on July 3. GE owns 62.5% of the partnership.

At the time ValueAct was first buying, Baker Hughes already had agreed to be acquired by Halliburton (HAL). ValueAct was also buying Halliburton shares. In a Jan. 15, 2015, regulatory filing, ValueAct said it had paid $1.22 billion for 22 million Baker Hughes shares, or about $55.68 each.

In an October 2015 filing, ValueAct said Baker Hughes stock was “undervalued and represented an attractive investment opportunity.” The hedge fund, in restrained language, indicated it intended to discuss with Baker Hughes “whether it makes sense for a ValueAct Capital employee to be on the Issuer’s board of directors.” Mergers and acquisitions would also be on the agenda.

ValueAct adjusted its Baker Hughes stake as time went on. By April 2016, ValueAct’s stake had swollen to 39.3 million Baker Hughes shares, a 9% stake.

The next month, in May, Baker Hughes and Halliburton called off the deal in the face of objections by regulators.

ValueAct itself had attracted scrutiny for its stock purchases and “access to senior executives of both Halliburton and Baker Hughes to attempt to influence the companies’ proposed merger and other aspects of their businesses,” as the Department of Justice alleged. In July 2016, ValueAct agreed to pay $11 million to settle charges that it should have notified antitrust authorities about its stock buys.

By the end of October 2016, another suitor came knocking at Baker Hughes’ door. GE came bearing more than candy and flowers; the deal provided for a special one-time cash dividend of $17.50 for each Baker Hughes share.

After the deal was sealed, ValueAct disclosed that its holdings in the Baker Hughes partnership stood at 31.4 million shares, a 7.3% stake, as of late July. What would ValueAct do at this point? It couldn’t realistically call for Baker Hughes to be broken up now. Pressuring GE didn’t make much sense, either, since then-Chief Executive Jeff Immelt had already announced he was stepping down. At the same time, the fund had a large enough stake to potentially be an irritant to GE and the Baker Hughes partnership.

ValueAct decided to throw in the towel. In a filing, the fund indicated that as of Dec. 1 its holdings had slipped to a 4.5% stake in Baker Hughes, about 19.2 million shares. Now that the stake is under the 5% threshold, ValueAct is no longer required to disclose trades in Baker Hughes shares. It could have sold the entire position by now.

Current GE Chairman and CEO John Flannery and Lorenzo Simonelli, chairman, president and CEO of Baker Hughes are likely glad to see ValueAct’s diminished role. GE itself has already seated an activist, Trian Fund Management’s Edward Garden. It didn’t want another at the new partnership.

And what of ValueAct’s Halliburton investment? That’s old news. At the end of 2015, ValueAct owned 16.5 million Halliburton shares but it exited the position entirely in the first quarter of 2016.

Email: editors@barrons.com

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