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GE reaches US$3.2b deal in energy industry
BOSTON—General Electric Co reached a US$3.2 billion agreement to acquire a French maker of automation systems used in the oil and gas sector, marking GE’s latest in a series of deals in the energy industry. The largest US conglomerate said its acquisition of Converteam, which reported 2010 revenue of US$1.5 billion, would boost its offering of high-efficiency electric devices used across the energy industry. “This acquisition pretty much touches every aspect of our energy portfolio,” said John Krenicki, a GE vice chairman who heads the company’s Energy Infrastructure unit.
Converteam’s products, electric motors that can replace gas-fired engines in oil and gas production, also give GE a chance to build its presence in supplying equipment to the fast-growing mining and metal sectors, he said. GE has made roughly US$14 billion worth of acquisitions over the past year—with US$11 billion in energy alone—as Chief Executive Officer Jeff Immelt has worked to move the company away from its former dependence on financial services.
Break from energy takeovers
But the energy unit will take a break from takeovers after Converteam closes, which it expects in the third quarter. “As you look forward here, our top priority is going to be making these acquisitions work for GE shareholders, not adding to the heap,” Krenicki said in an interview on Tuesday. Asked if GE Energy would continue its torrid pace of dealmaking, he said: “Not this pace, no.”
The deal values Converteam at about 15 times its US$239 million in earnings before interest, taxes, depreciation and amortization, Krenicki said. GE’s other big recent energy deals include the US$3 billion takeover of Dresser Inc, which makes gas engines used in oil production and mining, and the US$1.3 billion takeover of British oil equipment company Wellstream Holdings. It has also been a seller, in January closing its sale of a 51 percent stake in the NBC Universal media business to No. 1 US cable operator Comcast Corp. GE shares were down 10 cents, or about one-half percent, at US$19.65 on the New York Stock Exchange.
Keeping existing management
GE said it would buy about 90 per cent of Converteam, which was carved out of Alstom SA in a management buyout five years ago, from a group of current shareholders that include Barclays Private Equity and LBO France. Massy, France-based Converteam’s existing management will retain a 10 per cent stake in the company and will remain with the operation through the acquisition. GE said it will have the right to buy the remaining 10 per cent over the next two to five years for no more than US$480 million.
GE wanted to keep the existing management team in place to help work on ways to expand the combined companies’ reach to better serve new industries, executives said. “We have significant research and development we have been doing and we want to keep them on board to integrate the technology portfolio and help go into the mining and marine propulsion space,” said Joe Mastrangelo, a GE vice president. That sort of technology could help GE continue to expand its energy unit, Krenicki said: “There’s no reason that we could not have a GE Mining or GE Metals unit similar to what we have with GE Oil and Gas.”
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