GE announced April 30, 2014 that it made a binding offer to acquire the thermal power, renewable energy and electricity grid businesses of the French engineering conglomerate Alstom for $13.5 billion in cash.
GE said in a press release that the Alstom board “positively received” its offer and appointed a committee of independent directors to review the bid by June 2. The deal is expected to close in 2015.
Jeff Immelt, GE chairman and CEO, said in a statement that the strategic bid would allow GE to boost its presence and scale in the growing global power generation sector. Immelt said power and water was “core to the future of GE” and one of the company’s “higher growth and [higher] margin industrial segments.”
The International Energy Agency estimates that global electricity generation will double by 2030. More than 50 percent of new power capacity over the next decade will come from gas and steam turbines, the technology that forms the crux of the deal.
Patrick Kron, Alstom’s chairman and CEO, said that “the combination of the very complementary energy businesses of Alstom and GE will create a more competitive entity to better service customer needs.” He said that Alstom’s employees would join “a well-known, major global player with the means to invest in people and technology to support worldwide energy customers over the long term.”
Kron said that the deal would allow Alstom to expand its transport business as a standalone company. A strong balance sheet would give it the ability to capitalize on opportunities in the dynamic rail transport market.
Immelt said that Alstom’s energy businesses were “very complementary in technology, operations, and geography” to GE’s power and grid businesses. “We expect a collaborative and prompt integration that will yield efficiencies in supply chain, service infrastructure, commercial reach, and new product development,” Immelt said.
GE expects that fast integration will generate more than $1.2 billion in annual synergies within five years and that the transaction will be “immediately accretive” for GE shareholders.
Alstom’s power business had €11 billion in sales ($15 billion) in fiscal year 2013 and employes 46,000 workers in France, U.K. and other countries.
“Alstom, like GE, is a company built on engineering, innovation and technology,” Immelt said. “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.”
There are many common roots between the two companies. They are almost like “kissing cousins”.
In 1892, Thomas Edison’s Edison General Electric Company merged with Elihu Thomson’s Thomson-Houston Electric Company to form GE. Thomson-Houston’s co-founder Charles A. Coffin became GE’s first chief executive officer and president.
In 1928, Thomson-Houston’s French subsidiary combined with France’s Sociéte Alsacienne de Constructions Mécaniques to create Alstom. The company developed into a major builder of power plant technology, including gas turbines built around technology licensed from GE.
In 1999, GE acquired Alstom’s heavy duty gas turbines business and the two companies have remained close. Their facilities in the northern French city of Belfort stand next to each other, divided only by a road and a fence, and their top executives live in the same neighborhoods.
In 2011, GE also bought Alstom’s former power conversion business, which became GE Power Conversion. The unit is now developing next-generation energy storage and power systems for a broad range of industries including oil and gas, mining, renewables and shipping.
GE has been present in France for decades and the company currently employs 10,000 workers in the country.
Forty years ago, GE formed an aviation joint-venture called CFM International with France’s Snecma (Safran). Since then, CFM has delivered some 26,000 jet engines to 530 operators. CFM has more than 6,000 orders valued at $78 billion for its latest engine, the LEAP, which will enter service in 2016.
GE has also decades-long relationships with industrial leaders in France such as EDF, GDF SUEZ, Total, Technip and Air France.
“GE has an excellent track record of creating shareholder value from investments in Europe,” Immelt said. “Across Europe, we have built strong global competitors from European champions in oil and gas, aviation and healthcare.”
Not the first time GE has bought a “kissing cousin”. In 1986, GE bought RCA for $6.4 billion. RCA had been founded in 1919 as Radio Corporation of America. The US Anti-Trust Division forced GE to divest the company a dozen years later.