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(Bloomberg) -- ABB Ltd. agreed to buy the industrial solutions business of General Electric Co. in a deal valued at $2.6 billion that will accelerate the Swiss factory equipment supplier’s move into services spanning engineering to delivering power supplies to next year’s Olympic Games in South Korea.
The transaction is expected to generate cost savings of about $200 million annually, the Zurich-based company said in a statement on Monday. GE started a bidding process for industrial solutions in December. Bloomberg News reported Friday that the two companies were close to a deal.
Chief Executive Officer Ulrich Spiesshofer has made digital solutions and services a cornerstone of his growth strategy and his latest deal will bolster its offering of critical power, transformers and related services for customers such as hospitals, data centers and refineries. ABB is trying to rekindle growth after wrapping up a four-year restructuring plan during which it regrouped operations and resisted pressure from activist Cevian Capital AB to break up.
Since 2010, ABB has funneled around $11 billion in capital into its U.S. operations, and the GE deal would bolster the Swiss company’s footprint in North America. ABB bought an Austrian industrial-software company for about $2 billion in April to plug a gap in its automation business.
For GE, the transaction marks the first major portfolio change under CEO John Flannery, who took over on Aug. 1 and is trying to reverse this year’s biggest stock slide on the Dow Jones Industrial Average. Under pressure from activist investor Trian Fund Management, GE agreed in March to deepen its cost-cut targets. Proceeds from the electrical-products division sale would be used to fund restructuring, the company has said.
Industrial solutions, one of GE’s smaller divisions, has about 13,000 employees.
The sale is part of a broader reorganization of GE Energy Connections & Lighting, the company’s least-profitable unit last year with margins of 2.1 percent. GE has also put its iconic light-bulb manufacturing operations on the market. The company is combining energy connections with GE Power.
Flannery, who handled mergers and acquisitions for GE in 2013 and 2014, has said he’ll outline his plans for the Boston-based company and its portfolio in November. Under former CEO Jeffrey Immelt, the maker of gas turbines, jet engines and ultrasound machines tilted toward equipment manufacturing in recent years while jettisoning most finance and consumer operations.
(Corrects country in first paragraph.)
--With assistance from Alice Baghdjian and Richard Clough
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