June 24, 2024

DealBook: G.E. to Buy French Company for $3.2 Billion

6:18 p.m. | Updated

General Electric announced on Tuesday that it planned to spend $3.2 billion for a 90 percent stake in Converteam, a company based in Massy, France, that specializes in high-efficiency electric power conversion components like motors, generators, drives and automation controls.

The components are used across a variety of industries at the core of G.E.’s industrial and energy operations, including its oil and gas initiatives, as well as solar and wind power.

Under the agreement, which is expected to close during the third quarter of 2011, executives at Converteam would retain a 10 percent stake in the company, and management at both companies would buy any remaining shares over the next two to five years. In a statement, G.E. said the price for those shares would vary but would probably be no more than $480 million.

The move is the latest in a string of energy infrastructure acquisitions for G.E., which also picked up the well-support unit of the John Wood Group for $2.8 billion last month, as well as Wellstream Holdings, the British oil services company, for $1.3 billion in December. It also bought Dresser, a manufacturer and servicer of natural gas engines, fueling systems and other components, for $3 billion last fall.

Joseph R. Mastrangelo, a vice president with G.E.’s oil and gas division, said the acquisition would allow the company and its industrial and offshore oil and gas customers, for example, to readily replace inefficient fixed-speed drive technology with Converteam’s more flexible variable-speed systems, saving energy.

Converteam also makes converters that smooth the intermittency bumps that make solar and wind power difficult to integrate with other sources of electricity.

Roughly a quarter of the world’s electricity is used to turn rotating machines in all manner of industrial and power generating applications, according to General Electric. Making highly engineered components designed to make those processes as efficient as possible is an increasingly competitive — and lucrative — field, the company said. The sector was valued at roughly $30 billion last year, and companies like ABB, Siemens, Emerson Electric and Rockwell are trying to capture a piece of the market.

Many analysts agreed that the acquisition was in keeping with G.E.’s overall quest to expand its energy infrastructure operations — though some noted that Converteam’s earnings before interest, taxes, depreciation and amortization for 2010, about $240 million, were much smaller than the deal’s $3.2 billion price.

“It seems a bit expensive,” said Daniel Holland, an analyst with Morningstar. “The company has been very forthright about wanting to build out its exposure into more end markets, so it’s not entirely unexpected. It’s just a little bit on the pricey side, that’s all.”

Article source: http://dealbook.nytimes.com/2011/03/29/ge-to-buy-converteam-for-3-2-billion/?partner=rss&emc=rss

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