Proving the Business Case for the Internet of Things

GE offers $13.5 billion for Alstom assets

Iain Morris
May 6, 2014
 
GE has offered $13.5 billion for the thermal, renewables and grid businesses of Alstom as it looks to strengthen its position at the heart of the industrial internet market.

The all-cash transaction values Alstom’s (Levallois-Perret, France) assets at 7.9 times their earnings before interest, taxation, depreciation and amortization.

Expecting the deal to close in 2015, GE (Fairfield, CT, USA) believes the acquisition will be accretive to its own earnings in the first year, adding $0.08 to $0.10 of earnings in 2016, with approximately 75% of operating earnings forecast to come from GE Industrial by 2016.

Alstom says it has appointed a committee of independent directors to review the transaction by June 2, following which an exclusivity period may be granted.

Next steps would involve consultation with the company’s works councils and shareholders as well an application for approval from regulatory authorities.

France’s Bouygues, which owns 29% of Alstom, says it supports the transaction.

“This is a strategic transaction that furthers GE’s portfolio strategy,” said Jeff Immelt, GE’s chairman and chief executive. “Power and water is one of our higher growth and margin industrial segments and is core to the future of GE.”

“Alstom, like GE, is a company built on engineering, innovation and technology,” he added. “We respect and value the deep industry and technology expertise of Alstom employees and expect them to add to our proven track record of developing talent and leadership in France and globally.”

In particular, the takeover would shore up GE’s position in Europe, where it is keen to develop its position in the oil and gas, aviation and healthcare sectors.

Patrick Kron, Alstom’s chairman and chief executive, said the takeover would allow Alstom to focus on developing its transport business as a standalone company and capitalize on opportunities in the rail transport market.

Last year, Alstom’s power business – which has 46,000 employees – generated some $15 billion in revenues and $1.05 billion in income from operations.

The company’s grid business, meanwhile, made $5.2 billion in sales and $0.3 billion in income from operations in 2013.

GE says its intention is to make France the center of its European power business with the existing Belfort site – which it acquired from Alstom in 1999 – remaining the center of excellence for 50Hz gas turbines.

The company also anticipates net growth in jobs in acquired businesses in France.
 
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