GE paying $1.9 billion for a drilling supplier

GE paying $1.9 billion for a drilling supplier

General Electric agreed Monday to buy a drilling equipment maker, Vetco Gray, for $1.9 billion as dwindling oil and gas reserves prompt energy companies to increase their investment in opening new fields.

GE will gain 5,000 employees in more than 30 countries by acquiring Vetco from 3i Group, JPMorgan Partners and Candover Investments. The acquisition will also increase sales at the GE oil and gas unit by $1.6 billion, or 36 percent.

“Strategically, it’s a good buy,” said Keith Morris, an oil services analyst at Evolution Securities in London. “GE wanted a market leader and Vetco has a strong reputation for supplying wellhead equipment.”

Shares of GE slipped 1 cent to close at $37.55 on the New York Stock Exchange. The stock had gained 5.9 percent in the past 12 months, giving GE, which is based in Fairfield, Connecticut, a market value of $387 billion and making it the world’s second-biggest company after Exxon Mobil.

Vetco’s sales probably rose 18 percent last year, the sellers said. The company, based in Houston, makes equipment for surface and sub-sea drilling, together with valves and other components for oil rigs and pipelines. Sales at GE’s oil and gas unit were expected to rise 24 percent to $4.5 billion in 2006, the company forecast in November.

“We believe that GE had been trying to acquire Vetco Gray for a while,” Robert McCarthy, an analyst at Bank of America, wrote in a note to clients. “The transaction builds on GE’s current oil and gas platform and gives it a solid global presence.”

GE entered the oil and gas business in 1994 after buying Nuovo Pignone of Italy. The unit, based in Florence, Italy, provided $3.6 billion of GE’s $149.7 billion in revenue in 2005. It provides pumps, compressors and services for production, transportation, storage, refining and distribution.

Candover, 3i and J.P.Morgan Partners will receive about three and a half times their original investment in Vetco, less than three years after they bought it from ABB of Switzerland.

The three companies used $420 million in cash to finance the takeover and have since been repaid their original investment in two dividends. The buyout firms will keep Vetco Aibel, a company that designs and builds oil and gas production plants.

J.P.Morgan Partners is the private- equity division of the big U.S. bank, while 3i is the biggest publicly traded buyout firm in Europe. In November, 3i, based in London, raised a €5 billion, or $6.5 billion, buyout fund, and it is expanding investments beyond leveraged buyouts and venture capital in Europe. Candover, also based in London, manages a €3.5 billion.

Edward Evans reported from London.

$1.5 billion natural gas deal

Houston Exploration, the natural gas producer that put itself up for sale in June, agreed Monday to be acquired by Forest Oil for $1.5 billion.

Forest Oil will pay $52.47 in stock and cash for each share of Houston Exploration. The sale is supported by Jana Partners, the hedge fund that made an unsolicited $62-a-share bid for Houston Exploration in June that prompted the company to consider a sale.

“I think it’s a tremendous offer given the natural gas market has declined substantially since last summer,” Barry Rosenstein, founder and managing partner of Jana Partners, said in an interview. “This places the assets in far superior management hands.”

Shares of Houston Exploration rose $2, or 4.1 percent, to close at $50.69 on the New York Stock Exchange. Before Monday, the stock had fallen 16 percent since Jana Partners made its offer on June 12, following a drop in gas prices. Forest Oil fell $1.09, or 3.4 percent, to close at $30.13.

Natural gas futures traded on the New York Mercantile Exchange have tumbled 22 percent since closing near a six-month high on July 31 after a mild winter left an abundance of fuel in storage in the United States and there was no disruption to production in the Gulf of Mexico from hurricanes.

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