ZURICH: Power grids maker ABB is buying General Electric’s Industrial
Solutions business for US$2.6 billion on a bet that it can improve lacklustre
margins at the unit over the next five years, the Swiss engineering company
said on Monday.
Zurich-based ABB sees potential for cost synergies of US$200 million
annually after five years with the deal, which includes terms for long-term use
of GE’s brand.
In 2016, Industrial Solutions had sales of about US$2.7 billion, with
an operating margin of some 8%.
ABB is wagering on being able to cut costs and boost profitability at
the Georgia-based GE business, whose operating earnings before interest, taxes
and amortisation (EBITA) as a percentage of sales is only about half the 15% of
ABB’s comparable Electrification Products division.
Initially, combining with GE’s unit will reduce Electrification
Products’ margins to below ABB’s target of 15%-19%, although ABB aims to return
to that level by 2020, it said.
“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,” ABB CEO Ulrich Spiesshofer
said in a statement.
Products made by the GE unit include circuit
breakers, switchgear and power supply equipment used for facilities including
data centres.
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