GE was informed Tuesday that the European and U.S. regulators had granted permission for it to acquire French power service company Alstom, which last year was awarded a contract in China to upgrade power transmission for the China Nuclear Power Engineering Company's Yangjiang nuclear power station.
In order to win approval for the largest acquisition in GE's history, the company had to divest of several of Alstom's businesses. Specifically, subject to regulatory approval, GE will divest to Ansaldo Energia, a supplier of power generation plants and components, a segment of Alstom’s heavy duty gas turbine business, the company said. This includes the GT26 F-class gas turbine, the GT36 technology that was putting Alstom on track for development of H-class turbine production and service contracts for 34 GT26 units.
In addition, in order to address concerns raised by the DOJ and EC regarding competition for the service of GE gas turbines, GE will divest Alstom’s Power Systems Manufacturing (PSM) business, which provides after-market parts and services for other OEMs’ equipment. GE will receive a license to the PSM intellectual property used to offer after-market services for non-GE gas turbines.
GE reached an agreement with Alstom in April of 2014 to purchase Alstom’s power and grid businesses for $13.78 billion. Adjusting for the joint ventures announced in June 2014 (renewables, grid, and nuclear), changes in the deal structure, price adjustments for remedies, and net cash at close, the purchase price is expected to be approximately $9.5 billion. The positive financial impact for GE remains unchanged. GE expects the deal to generate $0.05-0.08 of earnings per share in 2016 and $0.15-0.20 of earnings per share by 2018. GE is targeting $3 billion in cost synergies in year five and strong deal returns. Including the deal adjustments, the overall economics and strategic rationale remain the same as GE announced in April 2014.
Strategically, Alstom and GE’s power and grid technology and geography combined will enable many new opportunities to create value for customers, with approximately 1,500 GW of installed base power generation, a 50 percent increase in GE’s current installed base.
The deal also increases GE's reach into renewables, an improved total thermal power plant design capability, a broader grid portfolio with the scale to compete globally, stronger project expertise and capabilities for financing power projects, a large data and analytics base and new ability to compete for other OEM services.