GE offers $13.5 billion enterprise value to acquire Alstom Thermal, Renewables, and Grid businesses

GE (NYSE: GE) and Alstom announced here today that GE has submitted a binding offer to acquire the Thermal, Renewables (“Power”) and Grid businesses of Alstom (ALO.PA) consisting of $13.5 billion (€9.9 billion) enterprise value and $3.4 billion (€2.5 billion) of net cash, totaling $16.9 billion (€12.35 billion).

The Alstom board of directors has positively received GE’s offer and has appointed a committee of independent directors led by Jean-Martin Folz to review the transaction by June 2. If this review concludes positively, an exclusivity period beginning no later than June 2 will be granted and the next steps will include Works Councils consultation, Alstom shareholder approval in a shareholder meeting, and customary regulatory approvals. Bouygues S.A., a 29% non-controlling shareholder of Alstom, supports the transaction. Although the transaction involves the acquisition of Alstom’s Power and Grid businesses, GE’s offer, typical of a public company transaction, permits the board of Alstom to consider unsolicited alternative proposals for the acquisition of Alstom, or of the Power and Grid businesses. The deal is expected to close in 2015.

Transaction details

The all-cash transaction is valued at 7.9 times pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) of Alstom’s Thermal, Renewables, and Grid business units. GE expects the acquisition to be accretive to earnings in the first year; it is expected to add $.08-$.10 of earnings in 2016; and approximately 75% of operating earnings is expected to come from GE Industrial by 2016.

Creating investor value

Jeff Immelt, GE Chairman and CEO, said, “This is a strategic transaction that furthers GE’s portfolio strategy. Power & Water is one of our higher growth and margin industrial segments and is core to the future of GE. Alstom, like GE, is a company built on engineering, innovation and technology. We respect and value the deep industry and technology expertise of Alstom employees and expect them to add to our proven track record of developing talent and leadership in France and globally.”

Immelt continued, “Alstom not only advances our strategic priorities and industrial growth, but is also expected to provide an excellent return on capital. Alstom’s businesses are very complementary in technology, operations, and geography to our power and grid businesses. We expect a collaborative and prompt integration that will yield efficiencies in supply chain, service infrastructure, commercial reach, and new product development. We expect these actions will generate more than $1.2B in annual cost synergies by year five and the transaction will be immediately accretive for GE shareholders.”

Immelt concluded, “GE has an excellent track record of creating shareholder value from investments in Europe. In France, this includes our longstanding CFM aircraft engine joint venture with Snecma (Safran); our acquisition of Thomson-CGR, a healthcare center of excellence for GE; and our 1999 acquisition of Alstom’s gas turbine business in Belfort, which today is GE’s technology center of excellence for 50 Hz gas turbines. Across Europe, we have built strong global competitors from European champions in Oil & Gas, Aviation and Healthcare.”

Patrick Kron, Chairman and CEO of Alstom, commented: “The combination of the very complementary energy businesses of Alstom and GE would create a more competitive entity to better service customer needs. Alstom’s employees would join a well-known, major global player, with the means to invest in people and technology to support worldwide energy customers over the long term. The proposed transaction would allow Alstom to develop its Transport business as a standalone company, with a strong balance sheet to capitalize on opportunities in the dynamic rail transport market.”

Creating customer value

Alstom’s Power business provides equipment and services for integrated power plant solutions for a variety of energy sources, including steam, hydro, coal, gas, nuclear steam, wind, and other forms of renewable energy. In fiscal year 2013, the business had €11 billion ($15 billion) in sales and €1.05 billion ($1.4 billion) in income from operations, and 46,000 employees.

Steve Bolze, CEO of GE Power & Water, said, “As we continue to benefit from rising global demand for power generation in key growth regions, we see power generation customers increasingly buying total power plant solutions, maximizing their efficiency. By combining our complementary gas and steam turbine technologies, GE will help customers achieve better performance from their existing and new power plants, enabling more accessible, affordable and sustainable power for people everywhere.”

Alstom’s Grid business offers Transmission & Distribution solutions to support the build-out of the power grid in emerging economies and replacement of aging electrical infrastructure. Alstom’s Grid business generated €3.8 billion ($5.2 billion) in sales and €0.2 billion ($0.3 billion) in income from operations in fiscal year 2013, with 18,000 employees.

Investing in France

GE said today that France will be the center of its European power business with headquarters and centers of excellence here for its steam turbine, hydro, offshore wind and grid businesses. GE plans that its Belfort site would remain the center of excellence for 50 Hz gas turbines. GE also anticipates net growth in jobs in acquired businesses in France, with the employee mix moving toward high-value manufacturing and engineering jobs.

GE will discuss the transaction on a webcast at 8:30 am ET on April 30, 2014, available at www.ge.com/investor. Related charts will be posted prior to the call.