[Editor's note: This story was updated at 11:47 a.m. CST June 26.]

General Electric Co. (NYSE: GE) said June 26 it plans to pursue an orderly separation from Baker Hughes Inc. (NYSE: BHGE) as the Boston-based conglomerate chooses to narrow its focus on its aviation, power and renewable energy businesses.

The announcement comes roughly a year after GE completed its buyout of Baker Hughes, merging the company with its GE Oil & Gas division and creating the world’s second-largest oilfield service provider by revenue.

GE plans to fully separate its 62.5% interest in Baker Hughes in an “orderly manner” over the next two to three years, the company said in the release.

Analysts with Tudor, Pickering, Holt & Co. (TPH) said the news as it relates to Baker Hughes is both good and bad.

“Good news is that investor concerns that GE would find a way to jettison its 62.5% interest in Baker Hughes in one fell swoop over near-term were misguided. Bad news [in terms of supply/demand for BHGE shares] is that GE does indeed plan to fully separate from Baker Hughes over next two to three years,” TPH analysts said in a morning note on June 26.

Rumors began circulating late last year that GE was considering shedding its holdings in Baker Hughes before the expiration of a two-year lockup period the companies set as part of their merger agreement. Though GE CFO Jamie Miller dispelled speculation after she affirmed the company’s commitment to Baker Hughes at a conference in February.

“Given today’s valuation levels, we see a lot of upside [with Baker Hughes]. We like the macro trends. At this point in time, we have no intent to change anything or execute prior to the expiration of any of the lockup periods,” Miller said at a Barclays conference in Miami according to a Reuters report on Feb. 21.

However, GE's ultimate decision to pursue the separation from Baker Hughes followed the conclusion of a strategic review of its portfolio targeting a leaner corporate structure with substantially less debt. The company also announced plans to spin off its health care business.

As a result, GE said it expects to generate at least $500 million in corporate savings and also reduce net debt by roughly $25 billion by the end of 2020 while maintaining more than $15 billion cash on the balance sheet.

“Today’s actions unlock both a pure-play health care company and a tier-one oil and gas servicing and equipment player,” John Flannery, chairman and CEO of GE, said in a statement on June 26. “We are confident that positioning GE Healthcare and BHGE outside of GE’s current structure is best not only for GE and its owners but also for these businesses, which will strengthen their market-leading positions and enhance their ability to invest for the future while carrying the spirit of GE forward.”

The separation of GE’s health care business includes the divestment of a 20% interest and spinoff of an 80% stake to shareholders.

Analysts with Cowen and Co. LLC’s equity research group pointed to the possibility of the company following a similar path while divesting Baker Hughes ownership since the merger agreement further stipulated that GE couldn't sell more than 15% of Baker Hughes to a single entity without conflicts committee approval for three years beyond July 2019.

“Assuming GE’s majority stake is not transferred to a single entity, removal of a controlling shareholder should benefit Baker Hughes’ valuation,” Cowen analysts said in a June 26 note.

Baker Hughes is a fullstream provider of integrated oilfield products, services and digital solutions with operations in more than 120 countries. The company posted a profit for the first quarter in April that beat Wall Street estimates.

In total, Baker Hughes’ revenue rose in the first quarter to $5.4 billion from $5.32 billion on a combined basis a year earlier. The increase was largely driven by rising oilfield services revenue, which rose 10% year-over-year to $2.64 billion in the quarter.

Emily Patsy can be reached at epatsy@hartenergy.com.

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