After a couple of failed offers, General Electric Co. (NYSE: GE) has finally reached an agreement to acquire Britain’s Wellstream Holdings plc (OTC: WSHOY) for $1.3 billion. The deal is expected to close in the first quarter of 2011, pending shareholder approval and usual closing conditions. The offer includes a special dividend of six pence per share for current holders of Wellstream shares.

Wellstream had turned down an offer worth about $1.2 billion from GE in early October. At the time there was speculation that National Oilwell Varco Inc. (NYSE: NOV) was interested in making an offer for Wellstream, which manufactures flexible pipe used in subsea oil and gas production.

The acquisition strengthens GE’s position in the deepwater drilling sector, especially in the floating production, storage, and offloading business, known as FPSO. Wellstream owns a manufacturing facility in Brazil, one of the key locations in the world for deepwater exploration and productions.

While Wellstream’s revenues (which totaled $602 million in 2009) will have an impact on GE’s overall revenue for this effort, by how much is arguable. The conglomerate’s Oil & Gas division posted revenue of about $1.8 billion in the third quarter of 2010, so another $150 million or so is welcome. The company’s Energy Infrastructure group is on track to post revenue of more than $35 billion in 2010.

But the real value of Wellstream to GE is that it gives GE another long-term revenue source that may not be terribly large right now, but that is sure to grow as exploration and production in the deep waters offshore of Brazil, Africa, and Asia attract more attention and investment from oil producers. Wellstream already has contracts in place with Petroleo Brazileiro SA (NYSE: PBR), or Petrobras, which is planning to spend more than $200 billion in the next decade developing Brazil’s offshore oil discoveries.

By tomorrow, the markets will have forgotten about this deal. It just doesn’t move the needle much for a company the size of GE. Over time though, Wellstream’s contribution to GE will grow both in strategic value and revenues.

GE’s shares are down about 0.5% in early trading this morning.

Paul Ausick

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