On the other hand, Lufkin Industries, Inc. (NASDAQ:LUFK)’s stock is already trading up by around 50% in the last three months, with almost 40% of gain occurring in pre-market trade after the acquisition announcement. This clearly shows that the company’s shareholders are satisfied with the deal. The deal from GE offers around 38% premium to Lufkin Industries, Inc. (NASDAQ:LUFK)’s shareholders and they will receive $88.80 in cash per share. The deal is expected to close in the second half of 2013.
The transformation
GE is currently in a transformation phase, wherein it is focusing more on the industrial segment along with reducing its dependency on other businesses. Under this process, the company announced its decision to sell the remaining 49% of stake in NBC Universal to Comcast Corporation (NASDAQ:CMCSA) in the first quarter. Comcast Corporation (NASDAQ:CMCSA) paid around $16 billion for this, which was earlier expected to happen in 2014. After this deal, Comcast now completely owns NBC Universal. I see this deal as a win-win situation for both companies. Via this acquisition, Comcast will enjoy more benefits from the rapidly growing prices of TV programs and sports rights. This deal brought a multi-billion dollar business opportunity to Comcast that includes cable networks, broadcasting and much more. It would bring good organic growth to the company, boosting the operating earnings in the future.
GE will get enough cash from this deal to support its future buyback plans. The company is planning to return around $18 billion to its investors in 2013. This includes $10 billion of buyback, along with the dividend hikes. The company increased its quarterly dividend rate by around 20% to 19.5 cents, pushing the total annual payout to $0.78. Moreover, now with the strong cash balance, I feel GE can invest more into its industrial business, similar to its Lufkin Industries, Inc. (NASDAQ:LUFK) acquisition.
Conclusion
GE has the capacity to tap various growth potential areas throughout different industries. The company seems to be on the right track with its acquisition and divestment strategies. Even though the European business is witnessing some major headwinds due to the macro-economic condition, I feel the company’s overall strategies will overcome such challenges. The stock’s journey has been quite volatile in the last year, with just over 12% return. I expect the above two discussed factors will provide much needed support to the stock’s price in the future. And, not to forget, GE has given attractive returns via dividend and share buybacks. I recommend a “buy” for GE and see this as a safe bet for a long-term investment.
The article The Best Is Yet To Come originally appeared on Fool.com and is written by Shweta Dubey.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
