General Electric Company GE is set to get the green signal from the EU (European Union) today for its $14 billion proposed bid to acquire French peer Alstom's energy assets, according to people familiar with the matter.
The green light will put an end to nearly eight months of politically-charged altercations, in which the U.S. giant moved mountains to convince regulators that the deal wouldn't hurt free competition for gas turbines in Europe. The final major roadblock to the merger - approval from U.S. antitrust authorities - is also expected to be cleared very soon.
Earlier this year, the European Commission raised anti-trust concerns, opining that the deal would hurt competition in the market for turbines, which are used to generate electricity from gas-fired power stations.
Since then, it has launched an extensive probe into the pros and cons of the deal. Their biggest concern was that the combined group could control more than half of the market for turbines operating at the 50Hz frequency in Europe and the rest of the world, excluding China. The merger would also result in GE competing with just two major companies: Japan's Mitsubishi Hitachi Power Systems and Germany's Siemens, with Italy's Ansaldo Energia being a niche player.
However, to gain their approval, GE reportedly tweaked the deal in a way so as to address the Commission's concerns, while at the same time preserving the economic and strategic rationale of the acquisition.While the exact modifications have not been disclosed, CEO Jeff Immelt had said in May that he was willing to sell off intellectual property to win regulatory approval, but any compromises with Alstom's service business were out of the question.
The Alstom deal is in tune with the U.S. giant's corporate strategy to retrace its industrial roots, and promises excellent return on capital, supply chain efficiencies and deep synergies. It also marks the biggest acquisition ever for GE and would significantly expand its footprint in a recovering Europe. Alstom's energy assets will be integrated into GE's power generation unit, thus making it one of the biggest manufacturers of power plant equipment globally.
Apart from expanding GE's footprint in emerging markets, the deal will unlock great cost synergies by consolidating Alstom's industrial footprint with that of GE.
The Alstom deal is pivotal to Immelt's multi-year strategy to redefine GE as an industrial giant, even as it sheds its financial assets in a whopping $200 billion asset offloading program. Post completion of the exit strategy, GE expects to derive about 90% of its annual earnings from industrial businesses.
GE presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks that are worth a look now include Engility Holdings, Inc EGL , Lockheed Martin Corporation LMT and Northrop Grumman Corporation NOC , each sporting a Zacks Rank #2 (Buy).
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