GE $10 Billion Deal Opens Fight to Service Rivals' Turbines

  • Alstom energy assets may lead to $3 billion in savings by 2020
  • GE Capital enter talks to sell some operations to French bank

General Electric Co. plans to use the $10 billion acquisition of Alstom SA’s energy assets as a way to muscle into the lucrative business of maintaining and repairing competitors’ turbines.

GE expects to reach deals in the next few months to service machinery from rival manufacturers, executives said Thursday on an investor call about the Alstom purchase. The new business takes direct aim at Siemens AG and other companies as GE looks to expand its power division, which already is the company’s largest unit.

“Alstom brings new service capabilities,” said Steve Bolze, chief executive officer of GE Power & Water. “We now have the capability to service” other companies’ equipment.

The move advances CEO Jeffrey Immelt’s push to expand the company’s industrial manufacturing operations while shrinking the finance arm and selling the consumer-focused appliances unit. The Alstom deal closed last month after a lengthy review from European regulators.

Siemens didn’t respond to a request for comment.

Cost Savings

The Alstom takeover can generate $1.1 billion in cost savings next year, and that could rise to $3 billion in 2020, GE Chief Financial Officer Jeff Bornstein said. The company anticipates that earnings will increase by 5 cents a share next year because of the deal and as much as 20 cents in 2018.

Alstom expands GE’s power-equipment installed base by 50 percent, boosting opportunities to generate revenue from servicing, said Nicholas Heymann, an analyst at William Blair & Co. Servicing competitors’ equipment gives GE the ability to use its own sensors and other diagnostic capabilities to upgrade existing turbines, Heymann said.

“They probably have an incremental advantage when they put the data analytics into it that allows them to offer a better value proposition” than customers are getting from existing servicers, he said. “It’s another dimension of opportunity.”

Servicing other companies’ equipment could generate $100 million in sales in 2020, GE said.

Separately, GE said in a statement that it had entered into exclusive talks with France’s Banque Federative du Credit Mutuel SA possibly to buy GE Capital commercial-lending operations in France and Germany. The businesses have about $7.5 billion in assets.

GE rose less than 1 percent to $30.03 at the close in New York. The shares have gained 19 percent this year, compared with a 0.5 percent decline in the Standard & Poor’s 500 Index.

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