GE to Buy Lufkin Industries in $3.3B Cash Deal (Update 4)

Updated from 1:38 p.m. ET, with comments from Jim Cramer and Credit Suisse analyst Julian Mitchell, market close information, expectations for GE's first-quarter results, as well as GE's updated stock valuation and performance.

NEW YORK ( TheStreet) -- General Electric ( GE) on Monday announced an agreement to purchase Lufkin Industries ( LUFK) in a cash deal valued at $3.3 billion.

Lufkin's shareholders will receive $88.50 share, or a 38% premium over the target company's closing share price of $63.93 on Friday. The deal is expected to be completed in the second half of 2013.

General Electric's shares rose 1% to close at $23.12. Shares of Lufkin rose nearly 38% to close at $87.96, which was hardly surprising, but was still slightly lower than the takeout price.

Lufkin is based in Lufkin, Texas, and manufactures artificial lift equipment that improves the efficiency of oil wells, and also makes gearboxes used for power transmission. The company's revenue totaled $1.281 billion in 2012, increasing from $932 million in 2011. The company's net earnings during 2012 were $81.9 million, or $2.45 a share, increasing from $70 million, or $2.14 a share, the previous year.

According to the companies' joint press release, Lufkin operates "a global network of more than 110 service centers and nine manufacturing facilities," employing 4,500 people in more than 40 countries.

GE's oil & gas segment had total revenue of $15.24 billion in 2012, increasing from $13.61 billion in 2011. The segment's 2012 profit was $1.92 billion, growing from $1.66 billion the previous year.

"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," said Daniel Heintzelman, CEO of GE's oil & gas segment. Heintzelman added that "Lufkin's world-class people, equipment and services fit perfectly in our portfolio and will enable us to offer a wide range of artificial lift solutions to our customers in this fast-growing artificial lift sector.

"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," Heintzelman said.

GE has plenty of money to fuel acquisitions, $77 billion in cash and cash equivalents as of Dec. 31. Lufkin is the latest in a series of energy infrastructure deals for General Electric, following the acquisitions of Wellstream PLC in February 2011, John Wells Group in April 2011 and Dresser in September 2011.

Jim Cramer said late Monday morning that investors should " buy GE's stock "right here," and that GE "will be, if I am right, the premier energy service company, after Schlumberger ( SLB), in the world, after a few more acquisitions."

"There are all sorts of companies that GE could buy, to make a statement in this sector," Cramer said.

Credit Suisse analyst Julian Mitchell rates GE a "outperform," with a price target of $25, and in a note to clients on Monday called the Lufkin acquisition a "smart strategic fit."

"This deal more than doubles GE's current 5% share in Artificial Lift, giving it ~15% market share once the deal is completed," Mitchell wrote, adding that "the 13.5x EBITDA multiple paid... on 2013 estimates is slightly aggressive relative to other industrial transactions... but LUFK's attractive market share in artificial lift and competitive positioning suggests it should command some premium over an average deal."

GE is scheduled to announce its first-quarter results on April 19, with the consensus among analysts polled by Thomson Reuters being earnings of 35 cents a share, compared to 44 cents a share during the fourth quarter and 34 cents a share in the first quarter of 2012.

Shares of General Electric have returned 11% this year, following a return of 21% during 2012. The shares trade for 12.5 times the consensus 2014 EPS estimate of $1.85. The consensus 2013 EPS estimate is $1.67.

Based on a quarterly dividend of 19 cents, GE's shares have a yield of 3.29%.

At the end of 2012, General Electric was authorized by its board of directors to repurchase roughly $14.9 billion worth of common shares. The company's share buybacks during 2012 came to $5.2 billion.

Interested in more on General Electric? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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