GE Sells Water Unit in $3.4 Billion Deal to Smooth Oil Merger

  • Company saw potential antitrust obstacle to Baker Hughes deal
  • Acquirer Suez gets broader access, more international business

General Electric Co. agreed to sell its water unit in a 3.2 billion euro ($3.4 billion) deal, putting the industrial giant a step closer to the planned merger of its oil division with Baker Hughes Inc.

The all-cash sale to French utility Suez SA and a Canadian pension fund manager comes about four months after GE put the water unit on the market amid concerns of regulatory pushback against the Baker Hughes combination. Boston-based GE is overhauling its portfolio to focus on industries such as energy and aviation while tilting away from finance and consumer operations.

“We had an overlap in our water business,” Steve Bolze, chief executive officer of GE Power, told Bloomberg Wednesday in an interview at an investor meeting in New York. The deal with Suez “works for the water business, it works for Power and it works for GE’s capital allocation.”

Suez said it will gain broader access to industrial clients and build its international presence, notably in the U.S. and emerging markets. The utility’s growth has been undermined by low inflation and sluggish industrial demand for its services in Europe. The transaction will help grow earnings per share and cash flow within the first year, it said.

“We’re getting into a strategic area, which is growing fast,” Chief Executive Officer Jean-Louis Chaussade said on a conference call. GE’s water unit had about $2.1 billion euros of revenue last year, half of which came from the U.S. The company is well positioned in an industrial water market that’s expected to grow by 5 percent a year, Suez said.

Canadian Investor

Suez, which plans to contribute its existing industrial water unit to the venture, will hold a 70 percent stake, with Caisse de Depot et Placement du Quebec, Canada’s second-biggest pension fund manager, owning the rest.

GE’s Water & Process Technologies division sells equipment and chemicals for such applications as purification, desalination and wastewater treatment. While it represents a small portion of GE’s total revenue, water had been a prominent part of the company’s image, featuring in marketing campaigns including the "Ecomagination" television advertisements. Until about a year ago, one of the largest manufacturing divisions was known as GE Power & Water.

Proceeds from the sale will be used to pay costs related to the Baker Hughes merger and as much as $1 billion of additional GE restructuring, the company has said. GE also intends to unload its industrial solutions business.

GE and Baker Hughes said this week that they received requests from the U.S. Justice Department for additional information about the combination, which could extend the waiting period related to the regulatory review. The deal, announced in October, is expected to close in the middle of 2017.

Suez Finances

Suez will partly fund the acquisition with a bridge loan that will be refinanced with a capital increase of 750 million euros, according to a company statement. It will also issue a long-term senior bond for about 1.1 billion euros and hybrid bonds for 600 million euros, according to the statement. The fund manager will contribute 700 million euros of equity.

The main shareholders in Suez, Engie SA, Criteria Caixa and Caltagirone Group, will participate in the capital increase in proportion to their existing stakes, the company said.

The transaction is expected to close by mid‐2017 and is subject regulatory approvals in the European Union and the U.S. Citigroup Inc. and Goldman Sachs Group Inc. were GE’s financial advisers on the transaction, while Morgan Stanley and Societe Generale advised Suez.

    Before it's here, it's on the Bloomberg Terminal.