Immelt: Alstom came to GE
GE was approached by Alstom in February regarding a potential takeover, with Alstom having grown concerned that it is not big enough to compete in the global energy business, GE chief executive Jeff Immelt revealed today.
In a conference call Wednesday morning detailing GE’s €12.4bn ($17bn) offer for Alstom’s power and grids businesses, Immelt confirmed that the two companies have been in close discussions for more than two months.
“They reached out to us in mid-February,” Immelt said, adding that due diligence “really took place over the last three weeks or so, at most”.
In explaining Alstom’s desire to sell its power and grids divisions, Immelt said: “I think the thinking inside Alstom was over the medium- and long-term, do they really have the scale and reach to do all the things that you have to do to be successful in the global energy business?”
GE chief financial officer John Flannery added that while Alstom has “good assets” and a “large installed base across the globe”, the company “in some cases … lacked the scale necessary to take full advantage of these assets”.
Flannery says he expects the deal to close in 2015, after GE nails down all the necessary regulatory and shareholder approvals.
While Alstom’s board has thrown its weight behind GE’s bid, it has left the door open to a possible counter-bid from Germany’s Siemens – a prospect apparently favoured by powerful figures in the French government, some of whom have expressed irritation that Alstom was negotiating with GE in secret.
“We have made a strong proposal here, and we expect to reach the finish line with it,” says Flannery.
“In terms of our rationale, this is a highly strategic acquisition for GE,” Flannery says. “The power sector is core to GE’s future.”
GE executives repeatedly stressed that Alstom’s power unit is “complementary” to GE’s own, both in technological and geographical terms. Specific to renewables, the acquisition would make GE a world leader in hydropower – a sector it effectively exited in 2008 – while also catapulting it into an interesting position in offshore wind.
“At GE, when we talk about renewables, we’re really focusing on wind,” says Steve Bolze, chief executive of GE’s Power & Water division. “Alstom brings a leading €1.4bn hydro player, and their wind business – including offshore – complements ours.”
Renewables accounted for $2bn of the $15bn in revenues chalked up last year by Alstom’s power and grids units. Of that, 78% came from hydro and 20% from wind.
Alstom’s grids unit is a fast-growing growing player in the HVDC market, which is critical to the long-term health of the offshore wind sector.
GE executives did not address the tension between the company’s apparent enthusiasm at taking on Alstom’s offshore wind business and GE’s own insistence in recent years that it did not intend to target the offshore wind market.
As recently as December, Cliff Harris, GE’s general manager for renewables across Europe, the Middle East and Africa, toldRecharge that the company had “made the strategic decision to focus our resources onshore”.
“How many areas outside the UK [and Germany] are really going to see major development?” Harris asked.
As part of its takeover offer, GE has pledged to host a centre of excellence for offshore wind in France.