Will G.E. Acquire Alstom?

While G.E. may have Alstom’s support to acquire its energy business, the company has yet to gain the support of the French government.

On Wednesday, G.E. chief executive Jeffery Immelt will visit French President François Holland for the second time to discuss G.E.’s $13.5 billion bid for Alstom’s energy business.

If G.E. and the French government come to an agreement, this deal will have many strategic benefits.

G.E.’s friendly bid of $13.5 billion, valued at approximately 8X EBITDA, is a bit on the high side for a business with modest growth, but G.E. believes it will see returns in strategic alignment and financial synergies.

Strategic Alignment

The acquisition will allow G.E. to grow and enter into markets that are complementary, but no overlapping with their current markets. On the other hand, Siemens, another competitor for Alstom has more overlap with its businesses.

Financial Synergies

From a financial standpoint, this deal will produce a 12% return in synergies. G.E. expects $1.2 billion in cost synergies for the next five years and shareholders see value in this transaction.

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