Alstom to have GE JV sales clause
General Electric’s upcoming $13.5bn acquisition of Alstom’s power and grids units will include a clause giving the French company the right to sell GE all its shares in a planned 50-50 joint venture (JV) in offshore wind, hydro and renewables.
If Alstom exercises that option, the price paid would return Alstom’s investment in those businesses, along with an annual accretion in line approximately to borrowing costs incurred by GE, Steve Bolze, GE vice president power and water, said on a conference call.
Such a sale would be one way that Alstom could increase its liquidity.
Alstom is investing $3.5bn for its share in that JV and two others covering a fusion of GE’s digital energy business and Alstom’s Grid business, and global nuclear and French steam.
GE will exercise operational control over the JVs and appoint the chief executives. Alstom will have standard minority governance rights. Bolze confirms that the renewables JV headquarters will be in France.
“These joint ventures will not impact our ability to achieve our synergies,” Bolze says. GE will absorb Alstom’s onshore wind business that includes a turbine nacelle manufacturing plant in Amarillo, Texas, and other global facilities.
GE expects to see $300m in synergies in the first year growing to $1.2bn in year five. “We expect to realize 80% of the $1.2 bn in synergies by the third year,” Bolze says. GE sees 86% of the expected synergies coming from Alstom’s core thermal power assets.
“Alstom Power and Grid are businesses we know and like and are being acquired at a good time in the cycle,” he adds.
“What we like the most about Alstom as it complements us in technology, geography and they have great talent. It brings us broader scope and power, a larger install base for services growth and large presence in emerging markets.”
The synergies will come from optimizing both companies’ manufacturing and services footprints; leveraging the combined sourcing to increase productivity; combining R&D efforts across product lines, and consolidating supporting functions across sales, general and administrative expenses.
Chief executive Jeff Immelt told analysts that GE has targeted a 2015 close for the acquisition, its largest to date. He estimates the deal will add between six cents and nine cents per share to earnings. It will allow GE to obtain 75% of its earnings from industrial.