General Electric Co. is tapping proceeds from the sale of the NBC television network to fund its $3.3 billion purchase of Lufkin Industries Inc. as Chief Executive Officer Jeffrey Immelt takes advantage of an oil drilling boom.
Oil and gas has become GE’s fastest-growing segment with sales since 2009 up 57 percent to $15.2 billion amid a shale-oil boom poised to make the U.S. the world’s largest crude producer. Revenue at Lufkin, which makes artificial lift equipment that brings crude and other materials to the surface, rose 37 percent last year to $1.3 billion.
“They’re buying the synergies, the growth,” said Brian Finneran, an analyst at William Blair & Co. in New York, which rates GE stock at “market perform.”
“It’s a hot space. They’ve done a couple deals in the past there.”
Buying companies like the oil machinery maker is a component of Immelt’s strategy to expand in manufacturing while shrinking GE Capital after the global financial crisis. GE’s new three-year incentive plan rewards the CEO in part for increasing industrial profit, heightening the motive to spend some of the $16.7 billion in cash from NBC for deals.
GE agreed to sell its 49 percent stake in NBC Universal to Comcast Corp. on Feb. 12 and announced plans to increase the size of its share repurchase program the same day. The divestiture also gave the company “the flexibility to do more M&A [mergers and acquisitions],” Chief Financial Officer Keith Sherin said at the time.
Lufkin holders will receive $88.50 per share in cash, and the deal should close in the second half, GE said Monday. The price is 38 percent more than Lufkin’s $63.93 close from last Friday.
GE is paying about 13.5 times estimated 2013 earnings before interest, taxes, depreciation and amortization, known as EBITDA. That compares with a median of 11.5 times that buyers paid in a survey of more than 30 comparable deals, excluding Lufkin, over the past decade, according to data compiled by Bloomberg News.