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Case Analysis Of General Electric Acquiring Alstom Power Business Unit

Posted on:2016-08-31Degree:MasterType:Thesis
Country:ChinaCandidate:R D YanFull Text:PDF
GTID:2309330482473740Subject:Business Administration
Abstract/Summary:PDF Full Text Request
China is now facing the structural adjustment and industrial upgrade of its economy. At corporate level, Merger & Acquisition (M&A) has become the main way to upgrade the companies and expand business in overseas market. However, there is still a very big gap between Chinese and the world leading companies in terms of merger strategy and integration after merger. So, it is still meaningful to study the cases of global M&A. From the end of 19th century to the early 21st century, there were 6 waves of mergers & acquisitions happened in the history. From horizontal merger in the same segment to the vertical merger in the supply change, from conglomerate merger to leverage buy out to globalization, there were many classical M&A cases and successful companies. Among them GE could be regarded as the model in the M&A history.General Electric Company was founded by Thomas Edison after getting the financial support from J.P. Morgan by the end of the 19th century. At the very beginning in the company’s history GE was on the way of M&A, especially after Jack Welch’s succession the company entered into the era of rapid growth, and then became the model of diversified business in the world. The strategy of "a company should be either #1 or #2 in a particular industry, or else leave it completely" has already become a rule in M&A industry.Alstom was founded in 1928, which was one of the world leading companies in manufacturing of electric and mechanical equipment. After several key acquisitions, Alstom became one of the world leading companies in manufacturing the equipment of power generation and transportation. However, its acquisition of the thermal generator business of ABB in 2004 brought great risk and resulted in big loss at approx.4 billion Euro, the company almost bankrupted. Alstom recovered after several years with the financial support from Bouygues Group. However, the company get into financial crisis again in 2014 which gave the opportunity to GE to acquire its business of power and transportation.On April 24th 2014, the news of GE acquiring Alstom was found on the newspaper, which became a hot news in the global M&A market at that time. Soon, Siemens the German giant manufacturer in the power generating and electrical equipment got involved in the competition of acquiring Alstom. After tough competition, French Government declared that the proposal from GE was accepted and the competition was closed. After the transaction, GE would hole the whole business division of Alstom Power, and there would be also three 50:50 joint-ventures between GE and Alstom in the businesses of grid, nuclear power and renewable power.In this paper, we shall make analysis on the merger type on the base of the modern M&A theory. According to the concepts of horizontal merger, vertical merger, conglomerate merger and the business scopes of GE, Alstom and Siemens, the acquisition of Alstom power and grid business seems to be a typical horizontal merger. However, after the comparing the product lines of the three companies, we find very big differences. If Siemens won the competition, this case would be definitely a horizontal merger, because they have many products which directly competing with Alstom. However, GE has many products which are now directly competing with Alstom although they are both doing business in the power segment. So the acquisition case of GE acquiring Alstom power and grid businesses is a typical conglomerate merger case.In this paper, we also make analysis from the motivation point of view such as corporate growth, synergy and diversification etc. When we look at the history of GE, corporate growth was always the main motivation of its acquisition activities, also in the case of GE acquiring Alstom power and grid business. After the transaction, GE would gain a business growth at approx. USD 10 Billion. Its years of experience in merger integration would also bring the company great expected synergy benefit at approx. USD 3 billion. As for the diversified business, GE would enter into the businesses of nuclear power, hydropower, off-shore wind power and power grid, which would contribute to GE becoming the first manufacturer in the world which covers the whole power generation types.In the final chapter of this paper, we shall discuss the enlightenment of this case to enhancing corporate capability, diversification & globalization, the successful M&A strategy and the appropriate entry point of acquisition activity.
Keywords/Search Tags:Horizontal Merger, Vertical Merger, Conglomerate Merger, Motivation, Synergy
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