General Electric Company announced on Monday that it has agreed to acquire oilfield services provider, Lufkin Industries Inc. (NASDAQ: LUFK), in deal estimated at about $ 3.38 billion.
The world’s largest electric turbines and jet engine maker said that the acquisition deal includes debt and is expected to close by the second half of 2013.
According to the deal, GE would offer $88.50 a share, representing 38% premium over Lufkin’s stock closing price as of Friday. Shares of Lufkin Industries skyrocketed over 30% in early trading hours.
The move is expected to help GE gain its traction in profitable oil and gas business. At present, oil and energy equipment making segment is GE’s fastest growing business division and contributes about 10% of the total revenue.
GE, which has made hosts of acquisitions in order to expand its presence in oil and energy focused equipment building business, is gradually winding down its media and finance segments. Since 2007, the Lufkin, TX based company has spent about $11 billion in acquisitions.
By acquiring Lufkin Industries, GE’s artificial lift capabilities will receive a boost. Artificial lift is a process where external means are used to assist lifting hydrocarbons to the surface of reservoirs that have low pressure. In addition, artificial lifting also improves the efficiency of naturally flowing wells.
Lufkin Industries posted solid quarterly results in its recently concluded quarter (fiscal fourth quarter) thanks to robust demand for its pumping equipment from company’s operating in energy abundant shale fields in the U.S. notwithstanding a slowdown in drilling activities.
Commenting over the acquisition and the boost the company would receive in artificial lifting, Daniel C. Heintzelman, GE Oil & Gas Chief Executive, said in a statement, “The artificial lift segment is at the heart of critical changes that are helping producers maximize well potential, which translates into increased output at lower operational cost.”
Referring to Spears & Associates findings, GE said that global artificial lift sector is likely to become $13 billion market in the current year.
While GE was advised by Deutsche Bank, Lufkin was advised by Simmons & Co.
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