The deal comes as new GE Chief Executive Officer (CEO) John Flannery, who took the reins after activists pushed out long-time leader Jeff Immelt, attempts to streamline and reorganize the business. (See also: GE—Being Cheap Doesn’t Make It Attractive: JPM.)
Ready to Provide ‘Oxygen’
Zurich-based power-grids maker ABB will take on the unit, which makes electrical equipment for utilities, as it pushes to solidify its position in the $30 billion electrification market behind global leader Schneider Electric SA. ABB will incur costs of $400 million over the next five years as it integrates the new unit, said CEO Ulrich Spiesshofer, indicating that the company is prepared to offer support and “oxygen” to offset years of under-investment in the segment and reverse its resultant market share losses.
“It was a non-core business, and what happens with unloved children is they might not get the right level of attention to be nurtured or get going,” said Spiesshofer. “We know what needs to be fixed but we are very confident this business will prosper as part of ABB.” ABB says it is committed to return margins at the struggling GE unit from 8% in 2016 to between 15% and 19% in 2020.
The sale is part of GE’s larger restructuring of its Energy Connections & Lighting segment, its least profitable unit in 2016 with margins at just 2.1%. The multinational conglomerate has also put its iconic light-bulb manufacturing operations up for grabs.
Investors can expect Flannery to provide more details on his plans for the company in November.
Trading flat on Tuesday morning at $25.15, GE stock reflects an approximate 20.4% dip year-to-date (YTD), versus the S&P 500’s 11.7% rally over the same period. (See also: Sell GE As Earnings Won’t Matter: Deutsche Bank.)