ABB to Buy GE Unit
Electrical equipment, power grid and robotics company ABB, Ltd. (NYSE: ABB – $24.74) said it will acquire General Electric’s global electrification solutions business GE Industrial Solutions (GEIS) for $2.6 billion. GEIS, which posted revenue of $2.7 billion in 2016, will be integrated into ABB’s Electrification Products division, which manufactures and installs components for low and medium voltage electrical systems. The acquisition expands ABB’s access to the North American market through deep customer relationships, large installed base and extensive distribution networks. The combination has the potential to save ABB around $200 million a year in cost synergies within five years. As part of the agreement, the companies will establish a long-term, strategic supply relationship for GEIS products and ABB products that GE sources today. ABB believes the deal will be accretive to earnings in year one. The Zurich-based company also said it will put the previously announced share buyback program on hold because of the transaction, which it expects to close in the first half of 2018.
Long-term appreciation potential for shares of ABB is decent, given the significant earnings growth that is likely in the coming years and the 3.1% dividend yield should enhance the total return for investors willing to wait this one out.