The battle of titans for a choice piece of the European power equipment markets came to an end this week and General Electric CEO Jeff Immelt emerged holding the prize. For the staggering price of $16.9 billion (€12.35 billion) — the largest sum GE has ever paid for an acquisition — Immelt bought GE a major stake in the European electric power generation and grid equipment markets, a play that had long eluded GE.
In the final deal, GE obtains Alstom’s power and grid business units and agrees to form joint ventures with Alstom in three areas: grid assets, combining operations from both companies; renewables, including Alstom’s off-shore wind and hydro businesses; and nuclear and steam, which includes Alstom’s production and servicing of equipment for nuclear power plants, development and sales of new nuclear equipment around the world, plus Alstom’s steam turbine equipment and servicing for applications in France.
The cumulative cash investment by Alstom in the joint ventures would be about $3.5 billion (€2.6 billion) and is valued at a higher EBITDA multiple than GE’s purchase price, which offsets some of GE’s total net cash outlay for the transaction, bringing it to $10 billion (€7.3 billion), GE said in a release.
In addition to the joint ventures, GE has signed a memorandum of understanding to sell its transportation signaling business to Alstom for approximately $825 million (€602 million) and to enter into multiple collaboration agreements involving services, technology, supply chain, manufacturing, and commercial support in the U.S.
GE’s German rival Siemens, working in tandem with Japan’s Mitsubishi Heavy Industries, was widely assumed to have a political advantage in its competing offer to trade its rail transportation operations for Alstom’s grid assets to create a formidable European giant in each realm to do battle globally.
In the end, GE’s offer won the favor of Alstom executives and stakeholders, including the French government, which in the process will obtain a substantial stake in Alstom, but Siemens succeeded in temporarily disrupting GE’s courtship efforts, driving up the cost of the acquisition for GE, and getting a look at Alstom’s books along the way.
“We look forward to working with the Alstom team to make a globally competitive power and grid enterprise,” Immelt said in the release. “We also look forward to working with the French government, employees and shareholders of Alstom. As we have said, this is good for France, GE and Alstom.”
GE expects to obtain synergies (or cost savings) of $1.2 billion within five years.