(CN) – In the wake of a severe liquidity crisis, a shareholder derivative action accuses General Electric of entering into a series of unfair transactions to raise billions by selling off a stake in Baker Hughes at the expense of the company’s investors.
The lawsuit, filed in Delaware Chancery Court against GE and its several officers, describes nominal defendant Baker Hughes as the “world’s only fullstream provider of integrated oilfield products, services and digital solutions.” The company is majority-owned by GE following a merger in 2016.
According to a stockholders agreement, GE was prohibited from selling its Baker Hughes stock before July 3, 2019, but in the wake of a multi-year plunge in GE’s share price, GE decided to sell off $4 billion in Baker Hughes’s stock at undiscounted prices through a secondary offering and stock repurchase.
“Baker Hughes, on the other hand, was forced to expend more than $1.5 billion in company cash to help solve GE’s problems, allow GE to flood the market with Baker Hughes stock, and restructure its arrangements with GE in ways that are even more unfavorable to the company,” the complaint states.
Analysts at BMO Capital Markets weighed in on the terms of the transactions, stating that the new commercial arrangements between GE and Baker Hughes will cost Baker Hughes roughly $75 million per year based on 2019 revenue.
Furthermore, GE allegedly used its “control and influence” over Baker Hughes to gain the needed cash and other long-term benefits without giving proper consideration to Baker Hughes investors.
Plaintiff, City of Riviera Beach Police Pension Fund, is represented by Michael J. Barry, Nathan A. Cook and Kimberly A. Evans of Grant & Eisenhofer, Pa. in Wilmington, Del., and of counsel Jeremy Friedman in Katonah, N.Y.