Wednesday morning saw nice advances for most stock market indexes. Market participants responded favorably to news that the Chinese government might choose to lift its tariffs from certain types of products exported from the U.S. In addition, tepid inflation data seemed to give the Federal Reserve more latitude to cut interest rates as soon as next week. As of 11:30 a.m. EDT, the Dow Jones Industrial Average (^DJI 1.56%) was up 89 points to 26,998. The S&P 500 (^GSPC 1.52%) was up 11 points to 2,990, and the Nasdaq Composite (^IXIC 1.78%) had gained 57 points to 8,141.
Among individual companies, General Electric (GE 5.74%) grabbed the attention of investors by announcing that it would sell a large portion of its stake in oilfield services giant Baker Hughes (BHGE 5.26%). Meanwhile, exercise equipment specialist Peloton came a step closer to going public, announcing its anticipated pricing range on its coming IPO.
GE makes a big sale
Shares of General Electric rose by 1.5% Wednesday morning after the industrial conglomerate revealed its plan to reduce its position in Baker Hughes. After the market closed Tuesday, Baker Hughes announced a secondary offering of 105 million shares owned by various GE entities, with the typical underwriter option to purchase an additional 15.75 million Baker Hughes shares from GE.
Image source: Baker Hughes.
The move will have a dramatic impact on Baker Hughes' internal operations. The sale will cut GE's total stake in Baker Hughes below 50%. As such, it will cede majority control of the oilfield services company, and the number of board directors it's allowed to designate will fall from five to three. However, Baker Hughes anticipates allowing all five of GE's current designees to continue to serve.
For investors, the sale is bittersweet. GE's purchase of Baker Hughes produced some clear advantages for the companies, including cost savings and efficiency gains. Yet General Electric has been going through an extended period of difficulties, dealing with challenges on multiple fronts. The anticipated cash proceeds from the offering, which could approach $2.9 billion even after Wednesday morning's 3% drop in Baker Hughes stock, could help the conglomerate restructure its operations and turn its business around. Meanwhile, Baker Hughes management will have greater freedom to pursue its own agenda while still making the most of a close collaboration with General Electric.
Peloton hits the track
Late Tuesday, Peloton updated its filings with the U.S. Securities and Exchange Commission, saying that it anticipates an offering price of between $26 and $29 per share when it goes public.
Given that price range, the maker of interactive exercise cycles and treadmills will be able to raise roughly $1.2 billion in IPO proceeds. With the company offering about 15% of its equity in an initial public offering, shares valued at the upper end of that range would put an $8 billion market cap on the company.
Investors have been curious to see how Peloton intends to grow its business. Currently, the company's equipment carries high price tags of roughly $2,000 to $4,000, and owners also have to pay monthly membership fees to gain access to the interconnected exercise classes that distinguish Peloton's exercise equipment from its rivals' offerings. It's a business model that focuses on upper-income customers, and would-be shareholders will want to know how Peloton intends to scale up its business and broaden its target market.
Like many companies that have gone public recently, Peloton is experiencing both substantial sales growth and large bottom-line losses. Hype about the fitness equipment innovator will likely drive investor interest in the offering, but in the long run, Peloton will have to find a clearer path if it wants to remain a high-growth powerhouse.
