GE accelerates artificial lift business with Lufkin acquisition

GE
  • Accelerates GE’s Growth in Artificial Lift With Solutions for a Wider Variety of Well Types and Technology for Production Automation and Optimization
  • Strengthens GE’s Turbomachinery Supply Chain With Lufkin’s Industrial Gears and Bearings
  • Builds on GE’s 2011 Acquisition of the Well Support Division of the John Wood Group PLC

GE (NYSE: GE) and Lufkin Industries Inc. (NASDAQ: LUFK) announced a joint agreement whereby GE will acquire Lufkin Industries Inc., a provider of artificial lift technologies for the oil and gas industry and a manufacturer of industrial gears, for approximately $3.3 billion. Lufkin shareholders will receive $88.50 per share in cash for each of their Lufkin shares.

Artificial lift, used in 94% of the roughly 1 million oil-producing wells around the world, helps lift hydrocarbons to the surface in reservoirs with low pressure and improves the efficiency of naturally flowing wells. Upon close, Lufkin will broaden GE Oil & Gas' artificial lift capabilities beyond electric submersible pumps (ESPs) to include rod lift, gas lift, plunger lift, hydraulic lift, progressive cavity pumps and a sophisticated array of well automation and production optimization controls and software. The ESP category of artificial lift is the only lift segment in which Lufkin does not currently compete.

"Advanced technologies, combined with new drilling practices, are revolutionizing the oil and gas industry," said Daniel C. Heintzelman, president and CEO, GE Oil & Gas. "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. In turbomachinery, 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."

"GE represents an excellent new home for Lufkin's technologies, services and our highly skilled and experienced employees," said John F. "Jay" Glick, Lufkin's president and CEO. "The global scale that GE offers, combined with its deep service offerings and network of research labs, will create new opportunities for our customers and employees around the world. This transaction allows us to realize our strategic objectives for expanding both our portfolio and our global platform and will allow us to reach global customers much faster and more effectively than we could have done as a standalone company."

Headquartered in Lufkin, Texas, with approximately 4,500 employees in more than 40 countries, Lufkin manufactures and services a broad portfolio of artificial lift equipment through a global network of more than 110 service centers and nine manufacturing facilities. In addition, Lufkin's three turbomachinery production facilities and seven service centers manufacture industrial gears and engineered bearings that are designed to produce higher power levels and speeds and better efficiencies in turbine applications, predominately for energy-related industrial applications.

The transaction is expected to close in the second half of 2013 subject to Lufkin shareholders' approval, regulatory approvals and customary closing conditions.

The purchase price of $3.3 billion represents a multiple of approximately 13.5x based on 2013 estimated earnings before interest, taxes, depreciation and amortization. In 2012, Lufkin posted record revenues of $1.3 billion, which reflected growth of 37%. New business bookings in 2012 grew 38% companywide to $1.3 billion year over year, driven by a 47% increase in its artificial lift business.

The global artificial lift sector is expected to approach $13 billion in 2013, according to Spears & Associates. Growth is being fueled by the development of unconventional shale plays and liquids-rich resource plays. In 2010, rod lift systems represented about 19% of the artificial lift sector (as measured by dollars of equipment sold per year). By 2012, rod lift had grown to 31% of the sector, according to Spears.

GE Oil & Gas has a proven record of acquiring, integrating and growing companies, as demonstrated by $11 billion in acquisitions since 2007, including the recent addition of Wellstream Holdings, Dresser Inc., and Well Support (artificial lift).

Simmons & Co. provided investment banking counsel and Bracewell & Giuliani provided legal counsel to Lufkin. Goldman Sachs and Deutsche Bank provided financial advice to GE, and Weil, Gotshal & Manges was GE's legal advisor.

 

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