Daily Management Review

GE Gets Nod from EC and DoJ to Complete Historic Acquisition of Alstom


GE Gets Nod from EC and DoJ to Complete Historic Acquisition of Alstom
The largest ever acquisition by General Electric was given the green signal by the European Commission (EC) and the Department of Justice.

GE can now go ahead with its proposed acquisition of Alstom power and grid after the two institutions gave their nod for the deal to be closed. Sources said that the deal can be completed as quickly as the fourth quarter of the current fiscal.

"Today's decisions by the European Commission and Department of Justice are major milestones in completing this deal as early as possible in the fourth quarter. We have addressed the EC’s and DOJ’s competition concerns while preserving the strategic and economic drivers of the deal. The complementary technology and geography of the Alstom assets will enable us to bring more value to customers and a strong return to GE shareholders,” said Jeff Immelt, Chairman and CEO of GE.

However GE has to fullfil the commitments given to the European Commission in connection with the clearance as the commission’s approval is conditional. One of the major commitments is the divestment to Ansaldo Energia, a supplier of power generation plants and components, a segment of Alstom’s heavy duty gas turbine business subject to regulatory approval.

The divestment would include Alstom’s GT26, an F-class gas turbine, product line for new unit sales, Alstom’s GT36 technology development program, which upon completion would result in an H-class gas turbine product and services contracts for 34 GT26 units.

Around 720 units of the remaining gas turbines of Alstom would be retained by GE.

To cater to the service competition concerns for the gas turbines as raised by the DOJ and EC, GE would have to divest Alstom’s Power Systems Manufacturing business that is critical for after-market parts and services for other OEMs’ equipment. The intellectual property of Power Systems Manufacturing business would be given to GE through a license so that I would be able to offer after-market services for non-GE gas turbines.

The deal between GE and Alstom is valued at €12.35 billion and was arrived at in April of 2014. However after making adjustments for the joint ventures by the two companies in the field of renewables, grid and nuclear power as announced in June 2014, the combined valuation of two agreements is believed to be around €8.5 billion or $9.5 billion.

The deal is expected to impact the share prices of GE and the company expects $0.05-0.08 of earnings per share in 2016 and $0.15-0.20 of earnings per share by 2018. The company also expects the deal to provide strong returns in a about five years.  

The deal would help GE increase its current installed base by 50% after addition of approximately 1,500 GW of installed base power generation. The company renewable energy portfolio would also be among the broadest and deepest in the industry and would enable GE to have improved total thermal power plant design capability.

 “The more we learned about Alstom’s technology and capabilities over the last 15 months, the more we liked the deal. It’s the right deal at the right time for GE,” said Immelt.
(Source:www.reuters.com & www.digitallook.com)