ABB plans makeover of GE’s ‘unloved child’ in $2.6bn deal

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Swiss engineering company ABB Ltd. agreed to buy General Electric Co.’s industrial solutions business for $2.6 billion to strengthen its foothold in the US, the world’s biggest market for electrification products like circuit breakers
and switchgears.
ABB will incur costs of $400 million over five years to integrate GE’s industrial solutions unit, Chief Executive Officer Ulrich Spiesshofer told journalists on a call on Monday. He said he’s prepared for the challenge of reversing its waning market share and years of under-investment at the business, which is in need of some “support” and “oxygen.” “It was a non-core business, and what happens with unloved children is they might not get the right level of attention to be nurtured or get going,” Spiesshofer said. “We know what needs to be fixed but we are very confident this business will prosper as part of ABB.”
Worth some $30 billion, the US is the world’s largest market for electrification, according Spiesshofer, who is trying to rekindle growth at ABB after wrapping up a four-year restructuring plan. His latest deal expands ABB’s offering of critical power, transformers and related services for customers such as hospitals, data centers and refineries. That’s in contrast to prior calls from activist investor Cevian Capital AB to break the company up.
GE started a bidding process in December for industrial solutions. Bloomberg News reported that a deal was close. During the prolonged negotiations, Spiesshofer said that while GE controlled the pace of the sale process, he stuck to his guns on what he thought industrial solutions was worth. Part of the attraction is how the transaction will forge closer links between the two companies, with ABB a key supplier, he said.
“We have clearly articulated the current challenges but also the strength of the business,” the CEO said. “When we look at the overall ratio between price and value creation potential, we find this acquisition very attractive.”
A previously announced share buyback will be put on hold due to the transaction, the Zurich-based company said in a statement on Monday. The deal is expected to generate cost savings of about $200 million annually.
“On the face of it, we believe there was a lengthy process to reach this deal and it looks reasonable,” Morgan Stanley analyst Katie Self said. “The more pressing issue at hand, though, will be around the previously announced share buyback, which ABB is putting on hold as a result of the acquisition, news we don’t expect will be well received.”

GE Overhaul
For GE, the transaction marks the first major portfolio change under CEO John Flannery, who took over on August 1 and is trying to reverse this year’s biggest stock slide on the Dow Jones Industrial Average. Under pressure from activist investor Trian Fund Management, GE agreed in March to deepen its cost-cut targets. Proceeds from the electrical-products division sale would be used to fund restructuring, the company has said.
Industrial solutions, one of GE’s smaller divisions, has about 13,000 employees. The sale is part of a broader reorganisation of GE Energy Connections & Lighting, the company’s least-profitable unit last year with margins of 2.1 percent. GE has also put its iconic light-bulb manufacturing operations on the market. The company is combining energy connections with GE Power.
Flannery, who handled mergers and acquisitions for GE in 2013 and 2014, has said he’ll outline his plans for GE and its portfolio in November. Under former CEO Jeffrey Immelt, the maker of gas turbines, jet engines and ultrasound machines tilted towards equipment manufacturing in recent years while dropping finance and consumer operations.