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The Alstom Acquisition—Largest in General Electric’s History?

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GE’s acquisition of Alstom

On April 30, 2014, General Electric Company (GE) announced that it intends to acquire the power business of French manufacturer Alstom SA (ALO) and completed the acquisition on November 2, 2015, for $10.3 billion.

Alstom’s acquisition closed 18 months after the announcement, and thus it did not contribute to General Electric’s 4Q15 revenue and earnings. But the management expects that Alstom is on track for ~$0.5 EPS in 2016. Alstom added $29 billion to GE’s order backlog while Alstom’s order book stands at $2.6 billion, of which power is at $1 billion and renewable energy (PBW) is at $0.5 billion. Grid came in at $1.1 billion.

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By 2018, GE’s management expects additional earnings of $0.15–$0.20 from the deal. GE believes that it will achieve $3 billion in synergies by 2018. GE is a part of the Industrial Select Sector SPDR ETF (XLI) and accounts for 11.78% of the fund’s total holdings. Investors in this ETF could benefit if GE achieves desired synergies from the Alstom deal.

General Electric’s thermal assets base

While GE is the world leader in gas turbines, it lags behind its rivals in steam turbine technology. But Alstom has a large presence in steam turbines, and so GE expects that Alstom’s expertise will be handy in gaining an edge in combined cycle gas plants, which typically employ gas turbines as well as steam turbines. The deal would also increase GE’s installed thermal assets base by 50% to 1,500 gigawatts, increasing opportunities for the service business.

GE is part of the Industrial Select Sector SPDR ETF (XLI) and accounts for 11.78% of XLI’s total holdings. GE is also one of the top ten holdings of the Vanguard High Dividend Yield ETF (VYM), accounting for 3.6% of VYM’s total holdings. Microsoft (MSFT) and Exxon Mobil (XOM) are among the top holdings in the fund.

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