Bloomberg, citing unnamed sources, has reported that an agreement between the two companies may be reached as early next week.
The deal, rumored to be worth more than $13 billion, will be the biggest-ever acquisition in GE’s history if it goes through.
GE is reportedly willing to pay a 25% premium to Alstom’s current market value for the acquisition. GE, which held about $89 billion in cash at the end of last year, has deposited almost $57 billion of that overseas.
The industrial conglomerate is expected to finance the acquisition with its foreign reserves.
GE CEO Jeff Immelt has been reducing the company’s reliance on its volatile capital arm, which virtually crippled the company during the global financial crisis.
Immelt plans to cut the conglomerate’s reliance on its financial arm (in terms of net earnings) down from 47% last year to 30% in the ongoing year.
The company has already moved to cut assets in the troubled division, and it announced last month that it will be spinning off its Consumer Finance unit.
The spinoff, which is expected to generate $3.5 billion for the company, is projected to be completed by 2015.
Instead, GE is increasingly focusing on advancing its industrial segment.
GE CEO Immelt has been looking to expand the conglomerate by acquiring more industrial businesses.
Last year, GE acquired oil and gas engineering company Lufkin Industries for $3.3 billion.
Earlier this month, Immelt also said that GE was looking for acquisitions of between $1-4 million, and will pay more for companies “that have excellent values, strong synergies, fit our growth strategies and are immediately accretive.”
Alstom’s acquisition is expected to be a major step in the industrial conglomerate’s path to its goal.
Bringing Alstom under the GE umbrella will make the industrial conglomerate the number one company in turbines for dams. GE, which is already the world leader in gas turbines, saw revenues from its Power & Water segment increase 14% over the preceding year quarter to $5.5 billion in 1QFY14.
The segment’s operating profits jumped 24% on a year-over-year basis (YoY) to $888 million as margins expanded 120 basis points to 16.1% during the quarter.
It is likely that the company’s operating margins will improve further, as GE is reportedly looking to sell all assets that do not generate operating margins of over 10%.
GE Transportation, which manufactures locomotives, reported the biggest drop in revenues compared to other segments in 1QFY14, with sales dropping 14% YoY to $1.23 billion in the quarter.
Similarly, the segment’s profits declined 24% on a YoY basis to $202 million as thee operating profit margin narrowed by 2.3 percentage points.
Alstom, which produces high-speed TGV trains, will provide the needed support to GE Transportation. Alstom’s revenues from its own Transport segment increased 5.6% in FY13 to €5.45 billion ($7.03 billion).
Alstom CEO Patrick Kron said in November that the company plans to sell a minority stake in its rail unit for around €2 billion ($2.76 billion) by the end of its 2014 fiscal year.
However, a complete acquisition is expected to raise antitrust concerns from European authorities.
Alstom said in an email statement today: “Alstom is not informed of any potential public tender offer for the shares of the company.
The group constantly reviews the strategic options of its businesses.”
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