Business Context and Reporting Period
This Form 8-K, dated July 3, 2017, reports the completion of the combination between General Electric Company's (GE) Oil & Gas business and Baker Hughes Incorporated. The new entity is named "Baker Hughes, a GE company" (BHGE). The transaction was structured as a reverse acquisition for accounting purposes, meaning the historical financial statements of GE Oil & Gas will serve as the historical statements for BHGE.
Key Financial Metrics
The filing does not provide specific revenue, profit, cash flow, or margin figures for the combined entity. However, it discloses the following transaction-specific financial details:
- Cash Contribution: GE transferred $7.4 billion in cash to BHGE LLC.
- Ownership Structure: In exchange for the GE Oil & Gas assets and cash, GE received approximately 62.5% of the membership interests in BHGE LLC and Class B common stock representing approximately 62.5% of the voting power.
Material Changes
The primary material change is the consummation of the merger and the resulting change in corporate structure and accounting acquirer. Additionally, the filing details significant changes to the registrant's certifying accountants:
- Dismissal of Deloitte: Deloitte & Touche LLP, the auditor for the original Baker Hughes entity, was dismissed subsequent to the filing of the Q2 2017 10-Q due to independence conflicts arising from its relationships with GE.
- Dismissal of KPMG S.p.A.: KPMG S.p.A., the auditor for GE Oil & Gas, was also dismissed subsequent to the Q2 2017 10-Q filing.
- Engagement of KPMG LLP: KPMG LLP was formally engaged on July 3, 2017, as the independent registered public accounting firm for BHGE for the fiscal year ending December 31, 2017.
Guidance, Outlook, and Risks
The filing does not contain forward-looking guidance, revenue outlook, or management commentary regarding future performance. The primary risk disclosed relates to auditor independence. Deloitte advised the Audit Committee of various relationships with GE (including non-audit services and financial interests) that are prohibited under SEC auditor independence rules. The Audit Committee determined these matters did not impair Deloitte's objectivity for the interim review of periods ending June 30, 2017, but necessitated the firm's dismissal for future periods.
Investor Verification Checklist
- Verify the final ownership percentage of GE in the new BHGE entity (stated as approx. 62.5%).
- Confirm the $7.4 billion cash contribution from GE to the new entity.
- Review the transition of historical financial reporting to GE Oil & Gas statements due to the reverse acquisition accounting treatment.
- Monitor the first financial report audited by the newly engaged KPMG LLP.
- Check the attached press release (Exhibit 99.1) for additional details on the transaction consummation.