The General Electric (GE) and Baker Hughes (BHI) partnership could potentially be the "most disruptive" cross-sector merger this year, as a J.P. Morgan analyst believes the deal "looks better" today than when it was first announced at the end of October.
"Our key incremental takeaway is the power of access to the GE Store and the leveraged effect of tapping into GE's network that could alter Baker's competitive positioning," wrote analyst Sean Meakim in a research note Friday. "As a somewhat distant third diversified competitor, BHI had little to lose and much to gain if it could pursue a disruptive path, particularly one that accelerates growth." The firm maintained its Neutral rating on BHI shares with a $41 price target.
Baker Hughes will have full access to the GE Store, which as Meakim puts, "enables the sharing of research and engineering, so materials developed in one business, for example, become accessible to others." This means services, supply chain elements, manufacturing facilities can all be shared, giving Baker Hughes the "potential for more sophisticated product development by tapping into the shared technology," Meakim notes. He also believes it will drive further cost reduction by eliminating redundancies in the research and development process.
For the J.P. Morgan analyst, this opportunity is the "most compelling rationale for the deal," meanwhile, Action Alerts PLUS portfolio managers Jim Cramer and Jack Mohr, who hold GE in the charitable trust, believe GE's Predix platform is the key to the deal.