General Electric Co.’s agreement today to buy Wellstream Holdings Plc brings its acquisitions of natural gas- and oil-exploration equipment makers to $4.3 billion in the past two months as Chief Executive Officer Jeffrey Immelt taps emerging market growth and energy demand.
GE’s purchase, valued at 800 million pounds ($1.3 billion) and offering sales and earnings multiples in line with industry averages, follows the company’s agreement to buy Dresser Inc. for $3 billion in October.
Wellstream expands GE’s operations in Brazil, where Exxon Mobil Corp., BG Group Plc and state-controlled Petroleo Brasileiro SA may need to spend more on the U.K.-based company’s flexible pipes and risers to ramp up energy production. The deepwater Tupi and Libra fields, discovered in the past three years, together may contain more than 20 billion barrels of oil.
“Subsea growth will come from Brazil,” Claudi Santiago, chief executive officer of GE Oil & Gas, said in a telephone interview. “Brazil is one of many reasons” buying Wellstream made sense, he said.
The purchase reflects probable acceleration in offshore oil and gas investment worldwide, Nicholas Heymann, an analyst with Sterne Agee & Leach Inc. in New York, wrote in a note to investors today.
“Since 2005, the global deepwater fleet has doubled, and we believe further deepwater field investments will be needed as global demand for energy continues,” said Heymann, who has a “neutral” rating on the stock. “Importantly, Wellstream has little Gulf of Mexico exposure, a region where development has slowed sharply.”
Buying Wellstream supports Immelt’s strategy to build up GE’s industrial business while shrinking the finance unit as a source of sales and profit. Immelt said in October that GE had about $20 billion in discretionary cash to spend as he unlocks a war chest amassed over two years.
GE’s offer is approximately 2.1 times the oil- and gas- pipeline maker’s annual sales, in line with the median of 30 deals in the past five years.
The deal would pay 13.2 times Wellstream’s earnings before interest, tax, depreciation and amortization, compared with the median of 13.6 in 26 acquisitions. Robbins & Myers Inc. paid 15.6 times ebitda for T-3 Energy Services Inc. in October, Bloomberg data show.
The acquisition will be added to the GE Oil & Gas unit, which generated $7.7 billion in sales last year.
The oil and gas unit is part of the GE Energy Infrastructure segment, a business Immelt has said he wants to expand. Energy Infrastructure provided $37 billion of Fairfield, Connecticut-based GE’s $157 billion in 2009 sales.
Wellstream, based in Newcastle Upon Tyne, England, reported 2009 sales of 386.1 million pounds, with Brazil accounting for more than half that revenue, according to data compiled by Bloomberg.
GE said in November it would spend $500 million to expand energy, transportation and health-care manufacturing in Brazil while adding its fifth global research center.
With Dresser, GE adds industrial valves and pumps to challenge companies such as Tyco International Ltd., Flowserve Corp. and Emerson Electric Co. Other energy-unit acquisitions this year included the waste-heat power generation business of closely held Calnetix Inc. for an undisclosed sum.
Wellstream shares rose 43 pence, or 5.8 percent, to 790 pence in London trading today. The company’s stock has gained 49 percent this year, higher than the 32 percent average among its peers, according to Bloomberg data.
GE’s revised offer is 29 percent higher than Wellstream’s closing price on Sept. 20, the day before the British company said it had received approaches.
GE fell 10 cents to $17.62 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 16 percent this year.