ABB buys GE’s industrial solutions for $2.6 billion

According to Business Insider, Swedish automation company, ABB Group (NYSE: ABB) has acquired General Electric’s (NYSE: GE) Industrial Solutions business for $2.6 billion in its efforts to bolster ABB’s position to become the second highest position in the electrification market.

ABB expects to realize approximately $200 million of annual cost synergies in roughly five years, which will be key to bring GE Industrial back up from its current slump. Also, as part of the agreement, ABB and GE have agreed to establish a long-term, strategic supply relationship for GE’s products and ABB products.

“With GE Industrial Solutions, we strengthen our Number 2 position in electrification globally and expand our access to the attractive North American market,” said ABB CEO Ulrich Spiesshofer. “Combined with the long-term strategic supply relationship with GE, this transaction creates significant value for our shareholders.”

Spiesshofer also added, “Together with the GE Industrial Solutions team, we will execute our well-established plans in a disciplined way to bring this business as part of the global ABB family back to peer performance. With this next step of active portfolio management, we continue to shift ABB’s center of gravity, in line with our Next Level strategy, by strengthening competitiveness, mainly in the North American market, and lowering risk with an early-cycle business.”

GE Industrial Solutions has customers located in over 100 countries and an established installed base with strong roots in North America, which is ABB’s biggest market. It will position ABB to have a stronger market growth in the North America region.

GE Industrial Solutions sells products such as everyday home appliances, lighting and industrial products; factory automation system, security and sensor systems, and others.

In 2016, GE Industrial Solutions had revenues of approximately $2.7 billion, with an operational EBITDA margin of approximately 8 percent and an operational EBITA margin of approximately 6 percent.

GE has received pressure for investors due to the poor performance. GE has been struggling heavily and has now resulted in the company selling off its industrial unit. GE’s unit will be integrated into ABB’s Electrification Products (EP) division. ABB’s acquisition of the unit will bolster ABB itself, but also to repair GE’s current status as the two companies work together.

The deal is expected to close in the first half of 2018.

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