General Electric to exit water treatment by 2017

General Electric plans to sell its water treatment business by mid-2017 and put the proceeds toward the integration of the oil services firm Baker Hughes. The sale will end a nearly 15-year involvement with water treatment chemicals, equipment, and separation membranes.

The water sale is a coda to a much larger deal in which GE plans to purchase a nearly two-thirds stake in Baker Hughes for $7.4 billion. GE will fold Baker Hughes into its own oil and gas services business to create a behemoth with 70,000 employees and annual revenues of $32 billion.

The acquisition advances GE’s goal of melding digital tools with industrial and infrastructure operations. Baker Hughes brings service capability, whereas GE brings oil and gas equipment technology “with a digital framework,” GE Chairman Jeff Immelt told analysts on an Oct. 31 conference call.

“We have been evaluating the fit of water in our portfolio for quite a period of time,” Jeff Bornstein, GE’s chief financial officer, revealed on the call. GE once heralded water treatment as a global megatrend. But Bornstein says the “fragmentation” of water treatment markets makes it less attractive now. Other firms that have backed away include Ashland, which spun out its water treatment chemicals business in 2014.

GE entered water treatment in 2002 with the $1.8 billion purchase of BetzDearborn from Hercules. In 2006 it enlarged the business with the purchase of separation membrane maker Zenon Environmental for $650 million.

Today, the water business is embedded in GE’s power business, which has $22.5 billion in sales. GE doesn’t disclose the water business’s sales, although Bornstein said it has annual earnings of about $300 million.

The oil business has more upside potential than water treatment, says Ray Will, a director at the consulting firm IHS Markit. However, in making the shift, GE is not abandoning chemicals, Will points out. Baker Hughes is the number two player in oil production chemicals after Nalco.