EC Oks GE's Acquisition Of Alstom's Power Generation And Transmission Assets

(RTTNews) - The European Commission said that it has approved under the the proposed acquisition of the energy businesses of Alstom (AOMFF.PK, ALS.L) of France by US-based General Electric (GE).

The approval is conditional upon the divestiture of central parts of Alstom's heavy duty gas turbines business to Ansaldo of Italy. Heavy duty gas turbines are mainly used in gas-fired power plants. The Commission had concerns that the transaction would have eliminated one of the main global competitors of GE in the heavy duty gas turbines market. This would have led to less innovation and higher prices in a market for a technology vital to meeting climate change goals. The commitments offered by GE address these concerns.

Concerning the other businesses that are part of the transaction, namely the thermal power generation businesses (other than gas), grid and renewables, the Commission did not identify any competition concerns essentially because the activities of the two companies are complementary and do not overlap.

Separately, GE said it was informed that the European Commission has approved the proposed Alstom power and grid deal and that the Department of Justice has also filed a proposed consent decree that would permit the acquisition to close. These clearances pave the way for GE to complete the transaction as early as possible in the fourth quarter.

The EC's approval is conditional on GE and Alstom fulfilling commitments given to the European Commission in connection with the clearance. Specifically, GE will divest to Ansaldo Energia, a supplier of power generation plants and components, a segment of Alstom's heavy duty gas turbine business.

This will include: Alstom's GT26 (an F-class gas turbine) product line for new unit sales; Alstom's GT36 technology development program, which upon completion would result in an H-class gas turbine product; Services contracts for 34 GT26 units. The remainder of Alstom's gas turbine installed base approximately 720 units) will remain with GE.

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 is close to finalizing a deal to divest these assets to Ansaldo and that transaction would be expected to close after the closing of the GE/Alstom transaction, subject to required regulatory approvals.

GE reached an agreement with Alstom in April of 2014 to purchase Alstom's power and grid businesses for 12.35 billion euros. 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 8.5 billion euros or about $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 targets $3.0 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.