General Electric in 3Q15 and Beyond: Transformation at Work
(Continued from Prior Part)
Alstom deal
On April 30, 2014, General Electric (GE) confirmed that it offered to acquire power business of French manufacturer Alstom for $16.9 billion. After battling with a competing bid from Mitsubishi Heavy Industries and Siemens, GE succeeded in clinching the deal to buy Alstom in parts.
However, various regulatory issues have caused delays even since the deal was announced. European regulators had issues with the deal as it would leave only two dominant players, GE-Alstom and Siemens (SIEGY) in the gas turbines business in Europe. European regulators feared that the duopoly might lead to higher prices for gas turbines in Europe.
After months of lobbying and negotiations, European regulators finally gave the green light to the deal on September 9, 2015, after GE agreed to make some concessions. GE’s management expects the deal to close in 4Q15. The new deal structure has reduced the acquisition price to €8.5 billion ($9.7 billion) after adjusting for liquidity at Alstom.
How will the Alstom deal benefit GE?
While GE is the world leader in gas turbines, it lags behind rivals in steam turbine technology. However, Alstom has a large presence in steam turbines. GE expects Alstom’s expertise will be handy in gaining an edge in combined cycle gas plants, which typically employ gas turbines as well as a steam turbines. The deal would also increase GE’s installed thermal assets base by 50% to 1,500 gigawatts, increasing opportunities for the service business.
How will GE shareholders benefit?
GE’s management believes that, in the first year, the Alstom deal will add $0.05 to $0.08 to earnings per share. By 2018, management expects additional earnings of $0.15–$0.20 from the deal. GE believes that it will achieve $3 billion in synergies by 2018.
GE is a part of the Industrial Select Sector SPDR ETF (XLI) and accounts for 10.7% of the total holdings. Investors in this ETF may benefit if GE achieves desired synergies from the deal.
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