ABB Acquiring GE Electrification Unit in $2.6 Billion Deal

Swiss engineering firm ABB has moved to expand its electrification business, especially in North America, with a $2.6 billion deal to acquire GE Industrial Solutions (GE IS). The move announced September 25 is the latest by GE to refocus its operations under new chief executive John L. Flannery, who replaced long-time GE CEO Jeffrey Immelt in August.

ABB, based in Zurich, Switzerland, in a news release said it wanted to expand its "access to North America" and take advantage of GE's "significant installed base globally." ABB said it expects to improve the performance of the GE IS division, which it said had been a "non-core business for GE." ABB noted that GE IS has a "comprehensive electrification portfolio," which is complementary to ABB's existing business, and the unit will be integrated into ABB's Electrification Products (EP) division.

For its part, GE will have access to "ABB's leading portfolio through [a] long-term supply partnership" for ABB products, that GE currently sources, and ABB has agreed to continue to use the GE brand. The deal is expected to close in the first half of 2018 pending regulatory approval. ABB said it expects to realize about $200 million in annual savings within the first five years of the acquisition.

New CEO Reviewing GE Businesses

GE has expanded its presence in the energy industry in recent years, as the company increased both its industrial and digital holdings. Flannery recently said he is reviewing each of GE's businesses, and more divestment could be coming. He said in late July, just days before becoming CEO on August 1, that he would announce a restructuring plan for the company in November. The New York Times reported Monday that activist hedge fund Trian Fund Management and its lead investor, Nelson Peltz, are pressuring GE to cut costs.

GE IS is headquartered in Atlanta, Georgia, and has about 13,500 employees globally, with customers in more than 100 countries. The division had revenues of about $2.7 billion in 2016. The unit is a global supplier of transformers, power systems, and other electrical equipment for industrial operations, including power plants, oil and gas projects, and data centers.

In a statement, ABB CEO Ulrich Spiesshofer said, "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."

Said Flannery in a statement: "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."

ABB in a release said it would "retain the GE Industrial Solutions management team and build upon its experienced sales force."

ABB Growing in North America

Tarak Mehta, president of ABB's EP division, said: "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 has made at least two other high-profile acquisitions in 2017. It agreed in April to buy Austria-based factory automation systems provider Bernecker & Rainer Industrie-Elektronik; terms of that deal were not disclosed. On September 14, it announced the closing of a deal to buy the communications networks business of Germany's Keymile Group, expanding ABB's offerings of local and wide area communication networks. Terms of that deal also have not been made public.

Flannery in a September 15 LinkedIn article said he wanted to refocus GE's data analytics and cloud computing work for some key industries. He specifically talked about energy, noting the company's Predix cloud-based platform "supports 4 percent of the world's power generation." He also noted that Chicago-based energy provider Exelon has "deployed GE's entire suite of Predix software applications across their generation fleet."

Before leaving GE, Immelt spent several years on a plan for GE to build cloud computing data services that would move the company toward more of a digital future, incorporating software into its industrial space. However, in late August Reuters reported GE "has had technical problems and delays with its software platform, known as Predix, which connects equipment like turbines and elevators to computers that can predict failures and reduce operating costs." Reuters said GE earlier this year "called an unusual, two month 'time-out' to tackle the Predix problems."

Reuters reported that the company's GE Digital unit has not hit revenue targets sought by investors and "is partly responsible for a 25 percent decline in GE's share price this year to a near two-year low," below $24 a share. The news service reported that three senior GE executives expect Flannery to make changes in GE Digital's operation, bringing in partners and perhaps selling a minority stake in the unit. The company's share price has risen more than 5% in the past two weeks amid rumors of a shake-up.

-Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine)

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