ABB has finalised a deal to buy General Electric’s industrial solutions business unit for $2.6 billion.
The deal would result in ABB taking over the part of GE’s business which supplies circuit breakers and other electrical equipment to industry.
GE Industrial Solutions is said to have deep customer relationships in more than 100 countries and an established installed base with strong roots in North America, ABB’s biggest market.
GE Industrial Solutions is headquartered in Atlanta, Georgia, and has about 13,500 employees around the world.
In 2016, GE Industrial Solutions had revenues of approximately $2.7 billion, with an gross profit margin of approximately 8 percent.
ABB says the transaction will be operationally accretive in year one.
ABB expects to realize approximately $200 million of annual cost synergies in year five, which will be key in bringing GE Industrial Solutions to peer performance.
As part of the transaction and overall value creation, ABB and GE have agreed to establish a long-term, strategic supply relationship for GE Industrial Solutions products and ABB products that GE sources today.
ABB CEO Ulrich Spiesshofer, says: “With GE Industrial Solutions, we strengthen our Number 2 position in electrification globally and expand our access to the attractive North American market.
“Combined with the long-term strategic supply relationship with GE, this transaction creates significant value for our shareholders.”
The ABB boss adds: “Together with the GE Industrial Solutions team, we will execute our well-established plans in a disciplined way to bring this business as part of the global ABB family back to peer performance.
“With this next step of active portfolio management, we continue to shift ABB’s center of gravity, in line with our Next Level strategy, by strengthening competitiveness, mainly in the North American market, and lowering risk with an early-cycle business.”
John Flannery, CEO of GE, says: “This combination brings together two global businesses with a broad complement of electrical protection and distribution assets.
“ABB values our people, domain expertise, and our ability to operate in the segments where we have depth and experience.
“GE will also benefit through an expanded strategic supply relationship with ABB as the two companies work together.”
GE Industrial Solutions will be integrated into ABB’s Electrification Products division, resulting in a “unique global portfolio and very comprehensive offering for North American and global customers”, claims ABB.
The GE solutions will benefit from ABB’s “innovative technologies” and the ABB Ability digital offering coupled with GE Industrial Solutions’ complementary solutions and market access, adds the company.
Included in the acquisition is a long-term right to use the GE brand. ABB will retain the GE Industrial Solutions management team and build upon its experienced sales force.
After closing, ABB says this transaction will have an initial dampening effect to its Electrification Products’ operational profit margin.
ABB says it is committed to returning the Electrification Products division to its target margin corridor of 15-19 percent during 2020.
Tarak Mehta, president of ABB’s Electrification Products division, says: “This acquisition strengthens our position as partner of choice for electrification globally and in North America.
“We look forward to working with GE Industrial Solutions’ and ABB’s customers and channel partners to create new opportunities in this highly attractive core market for our division.
“We have a clear integration plan to realize the synergies of this combination and to bring our combined business back into the target margin corridor during 2020.”
ABB’s Electrification Products division delivers more than 1.5 million products to customers around the world every day through a global network of channel partners and end-customers.
ABB says its Electrification Products offers a “comprehensive portfolio” of low- and medium-voltage products and solutions for a smarter, more reliable flow of electricity from substation to socket.
Given this transaction, ABB has decided to put the previously announced share buyback program on hold.
The transaction is expected to close in first half of 2018, subject to customary regulatory clearances. Credit Suisse and Dyal acted as financial advisors to ABB, and Davis Polk & Wardwell provided legal counsel.