GE clears final hurdle to $ 14 b Alstom deal

Thursday, 10 September 2015 00:00 - - {{hitsCtrl.values.hits}}

The logos of French power and transport engineering company Alstom and US conglomerate General Electric are pictured at the site of the companies in Belfort

Reuters: General Electric has won EU approval for its 12.4-billion-euro ($13.9 billion) acquisition of Alstom’s power business after agreeing to sell some of the French company’s turbine assets to Italian rival Ansaldo Energia.

EU officials said the concessions allayed concerns that the deal would reduce competition in the European market for heavy-duty gas turbines to two major players, namely the merged company and Germany’s Siemens, potentially leading to higher prices and pushing up the cost of electricity.

The US conglomerate’s acquisition of Alstom’s energy business – its largest deal ever – will bring together two of the world’s biggest manufacturers of power plant hardware and is crucial to GE’s plans to increase its focus on industrial operations and shift away from finance.

The EU decision, as well as creating a major new player in the sector in Ansaldo, will allow GE to press ahead with a cost-cutting program. It told investors in May it expects $3 billion in cost reductions over the next five years as it combines its operations with those of Alstom.

The deal has been approved by regulators elsewhere, including in the United States on Tuesday. But overcoming the European hurdle will nevertheless come as a relief to GE, as EU officials stymied its $42 billion offer for Honeywell International 14 years ago despite US clearance.

Both Alstom and GE said they expected to finalise the deal as early as possible in the fourth quarter.

The head of GE’s Power & Water division described the acquisition as a “transformational deal” as GE focuses more on big-ticket industrial products.

Alstom comes with about 500 gigawatts of installed power around the world, while it has taken GE “since the days of Thomas Edison” to build up its 1,000 gigawatts of installed power generation, Steve Bolze said in an interview.

Under GE’s concessions, it will divest Alstom’s heavy-duty turbine product line and the technology it is developing for very large turbines to Ansaldo, of which Italian state-backed investment fund Fondo Strategico Italiano and China’s Shanghai Electric each own 40%.

The US conglomerate will also sell Alstom’s service contracts for 34 installed turbines and its US-based subsidiary Power System Manufacturing to Ansaldo.

European Competition Commissioner Margrethe Vestager said Ansaldo was already an established player in the heavy-duty gas turbine market and, with the addition of Alstom’s assets, would be able to replace Alstom’s role in the market.