Following GE's successful exits from its financial services businesses, the company is reinventing itself. On the front page of the website, the company touts how it is the "World's Premier Digital Industrial Company" and "Transforming Industry by Connection the Physical and Digital." What a compelling proposition offered by one of the world's largest companies -- and what a terrific and scalable asset base NOV can contribute to this effort.
In February 2016, Marco Annunziata, chief economist at General Electric, published a presentation articulating the company's view that the world economy will be 1/5 larger in 2020 than it is today. This core global growth, driven by population growth and development in China and India, will front-load oil demand by 900,000 barrels per day over the next five years. In addition, natural gas is expected to grow at a slow, but steady 1.4% compounded until 2040.
GE is investing in asset and enterprise optimization and asset performance management. If you listen to this quarter's National Oilwell Varco conference call, management spoke at length about Big Data, optimization of existing infrastructure and laying the groundwork for a more cost effective NOV into the next cycle.
GE's oil and gas revenue, obviously forecasted to be down around 18% from 2015, is still near scale at $12 billion. But General Electric should be larger in this key strategic area as it focuses on the future as an industrial technology company. NOV would offer, even at low-cycle revenue, a hefty $8 billion in revenue. NOV's strong positions in rig aftermarket, wellbore technologies and completion and product solutions would be very attractive to GE in an effort to build up an asset base for it to layer on the compelling Predix technology platform.
NOV's existing aftermarket and strong position in rig systems (at the very bottom of this current cycle) would be very attractive for General Electric from a timing perspective as well. It was not long ago that NOV's equity was valued at nearly $40 billion. Today, NOV's equity market cap is $12 billion. What an opportunity for General Electric to pick up a well-capitalized company with dominant positions in the global oil and gas market.
National Oilwell Varco offers the heft that GE needs to sizably scale GE's ambitions as a system and technology integrator, with a sustainable service annuity, across a materially larger asset and geographic base. NOV would also, without a doubt, benefit from GE's hefty and brass-knuckled supply chain and appropriate fixed-cost management practices.
What a fit: GE and National Oilwell Varco. And what a perfect time to pursue it from a mutually beneficial value-creation perspective.