GE [NYSE: GE] was informed today that the Alstom Board of Directors has unanimously decided to positively recommend GE’s offer to acquire the Power and Grid businesses of Alstom. With this decision, the transaction will proceed with Works Councils consultation, customary regulatory approvals and Alstom shareholder approval. The deal is expected to close in 2015.
GE Chairman and CEO Jeff Immelt said, “We will now move to the next phase of the Alstom alliance. We look forward to working with the Alstom team to make a globally competitive power and grid enterprise. We also look forward to working with the French government, employees and shareholders of Alstom. As we have said, this is good for France, GE and Alstom.
“For GE, the overall economics of the deal remain intact,” Immelt said. “This transaction remains accretive in year one.”
The French State has confirmed that, subject to execution of definitive agreements for the various alliances between GE, Alstom and the State, including the Global Nuclear & French Steam Alliance, and the State entering into an agreement to purchase shares in Alstom, it will grant the required foreign investment authorization.
GE’s offer to acquire the Power and Grid businesses of Alstom remains unchanged at $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 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.
Once closed, GE and Alstom would form three joint ventures:
- Grid: the combined Grid assets of GE and Alstom
- Renewables: Alstom’s Off-shore Wind and Hydro businesses
- Global Nuclear and French Steam: Alstom’s production and servicing of equipment for nuclear power plants, and development and sales of new nuclear equipment around the world; and Alstom’s steam turbine equipment and servicing for applications in France.
The cumulative cash investment by Alstom in the joint ventures would be about $3.5 billion (€2.6 billion) and is valued at a higher multiple (pro forma EBITDA) than GE’s purchase price multiple. Including this purchase by Alstom, GE’s total net cash outlay for the transaction is $10 billion (€7.3 billion).
The terms of these alliances include usual shareholders agreements with standard governance and liquidity rights.
In addition to the joint ventures, GE has signed a memorandum of understanding to sell its Signaling business to Alstom for approximately $825 million (€602) and to enter into multiple collaboration agreements involving services, technology, supply chain, manufacturing, and commercial support in the U.S.
GE maintains its synergies target of $1.2 billion annually by year five. GE expects the deal to be accretive to earnings in the first year. The joint ventures will lower GE’s projected earnings from the transaction by approximately $0.01-$0.02 per year.