Lufkin Industries to be Acquired by G.E. for $3.3 Billion

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On Monday, General Electric agreed to buy Lufkin Industries for approximately $3.3 billion, expanding its oil and gas businesses to include making industrial lifts for oil and gas platforms.  In this deal, G.E. will pay $88.50 per share which is a 38 percent premium over Lufkin’s closing price on Friday. 

This is the latest acquisition by G.E.’s oil and natural gas unit, which is one of the quickest growing arms of the conglomerate.   This deal is intended to build on the 2011 deal where G.E. acquired John Wood Group’s well services.   G.E. continues to ride the oil and gas boom with this $3.3 billion acquisition.

G.E.’s oil and gas unit has made $11 billion worth of acquisitions since 2007, not including Monday’s announcement.  The company wants to bolster the company’s offering of drilling services.  Included in previous deals was the $1.9 billion Vetco Gray takeover in 2007 and the $3 billion acquisition of Dresser in 2010.  

However, it was the deal for the John Wood Group’s well services business in 2011 that helped pave the way for the Lufkin transaction.  With that $2.8 billion purchase, G.E. acquired a line of specialized pumps used for enhanced recovery from big oil wells. 

The Lufkin deal is going to add a complementary business of oil and gas platforms and a line of industrial gear boxes used by several customers, include G.E. itself.  According to G.E.’s oil and gas unit chief executive Daniel C. Heintzelman, 90 percent of wells around the world either use or would need artificial lifts. 

Lufkin Industries is based in Lufkin, Texas and its core operation is to manufacture lift equipment for oil and gas platforms.  The company reported $81.9 million in net income last year out of $1.3 billion in revenue.  This was the third consecutive year of growth for the Lufkin. 

According to G.E., the company will be able to service oil and gas wells at any stage of production with this deal.   Heintzelman said in a statement, “Advanced technologies, combined with new drilling practices, are revolutionizing the oil and gas industry.  In turbo-machinery, Lufkin is already one of our suppliers for turbo gearing and specialty bearings products, and this acquisition allows us to further utilize their technologies and expertise for our customers.”  

He also added that the G.E. was continuing to bet big on drilling.  The industry is expecting a 10 percent or more increase a year for up to a decade in shale exploration.  This deal is expected to close in the second half of the year. 

Source: www.dealbook.nytimes.com

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