5 Top Reasons Why Analysts Are Gung-ho About General Electric Company (GE)’s Alstom Acquisition


General Electric Company (NYSE:GE) has cleared key regulatory hurdles paving the way for the completion of the $10.3 billion acquisition of Alstom. The acquisition provides the conglomerate a pathway to return to its industrial roots as it continues to exit the lending businesses.

As it stands, General Electric Company (NYSE:GE) should be able to generate 90% of its profits from industrial businesses. Analysts at Bernstein remain bullish about the merger, the company having affirmed key takeaways at a recent conference call.

Seamless integration

Integration of the two companies operations is well on track. More than 200+ GE staff and 400 more Alstom workers have been working round the clock to ensure seamless integration. Over 40 Alstom, senior managers are already part of GE’s management team tasked with making key decisions.

Broadening General Electric industrial Roots

General Electric acquiring Alstom is more of a transformational deal as focus shifts to big ticket industrial products. Shifting focus to industrial operations while targeting key areas of making jet engines, locomotives, and power turbines is the main play with the deal. Leveraging Alstom’s technology and expertise should see the company enhancing its efforts in the business of servicing and repairing other company’s equipment.

Cost Savings

Cost savings is one of the key synergies that make the merger worthwhile. General Electric expects $3 billion in cost savings by 2020. The extra cash on the side could mean more cash for payouts in the form of dividends on buybacks.

Reducing duplications in manufacturing sourcing and research and development should also relieve pressure on expenditure. General Electric has however not highlighted whether it will carry out layoffs or factory closures.

Accretive Earnings

Delays in closing the deal could sink benefits from the acquisition to the low end of the initial forecast range. General Electric Company (NYSE:GE) expects the deal to add 5 cents a share to earnings in 2016 against an initial guidance of between 5 cents to 8 cents a share. However, it is still in line with analysts’ expectations.

Energy Management Scaling Up

Alstom comes with 500 gigawatts of installed power that General Electric Company (NYSE:GE) expects to drive revenue from the grid business to $12 billion from $7.3 billion.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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