Ananym Capital would like to see energy and technolgy company Baker Hughes spin out its oil field services and equipment business, arguing such a step could help push up the stock price by at least 60%.
“That’s our preferred path based on our analysis,” Ananym co-founder Charlie Penner said on Tuesday at the 13D Monitor Active Passive-Investment Summit in New York. “But we also have full confidence in Baker Hughes’ board and management to choose the optimal path for shareholders.”
The company, which now has a market value of $46 billion, was created in 2017 through a merger of Baker Hughes and GE Oil and Gas and has two businesses.
At current market valuations, the whole company should be trading at 13X 2026 estimated earnings before interest, taxes, and amortization, Penner said, noting however that it is trading only at 9X EBITDA.
The Industrial and Energy Technologies business makes turbines, motors and compressors for LNG infrastructure and low-carbon energy sources like electricity from renewables, geothermal and hydrogen.
The oil field services and equipment business makes equipment and provides services for oil and gas exploration and the legacy Baker Hughes business.
Baker Hughes’ stock price is up this year and has outperformed rivals Halliburton and Schlumberger, which is now SLB. But the bulk of Baker Hughes’ earnings is contributed by the technologies unit, and management and the board recognize that investors have imposed a “sum of the parts valuation discount,” Penner said.
Baker Hughes said it values the perspectives of all shareholders, and that it “will continue to engage with Ananym Capital to better understand their views and share ours.” “We remain focused on executing our strategy to drive growth and deliver additional value to shareholders,” a spokeswoman said.
Earlier this month, Baker Hughes said it will conduct a “comprehensive evaluation of capital allocation, business, cost structure and operations to continue delivering shareholder value.”
Penner, who won a board victory at Exxon Mobil in 2021, and partner Alex Silver founded Ananym last year and have held constructive talks with Baker Hughes’ management.
By separating the oil field business, the technologies segment could be properly valued, and each business could optimize its capital allocation strategy, including more investment and management focus for technologies.
The oil field business could be a “strong player” given its earnings are more weighted to production revenue for existing wells, instead of building new wells, and it has more international exposure than Halliburton and SLB, Penner said.
JPMorgan analysts have praised the company’s actions, noting in a note earlier in October that it has “been one of the best-performing stocks in OFS (oil field services) by a wide margin.” Referring to the October 6 pledge to evaluate its business, the JPM analysts wrote “Today’s release suggests that the company isn’t planning to rest on its laurels. This has been the company’s DNA under CEO Lorenzo Simonelli.”
Ananym had urged healthcare products distributor Henry Schein to refresh its board, develop a CEO succession plan and cut costs. CEO Stanley Bergman, who held the position 35 years, is stepping down after Ananym threatened a board fight. It is also suggesting that auto parts supplier LKQ sell its European business.
(Reporting by Svea Herbst-Bayliss; Editing by Cynthia Osterman)