Dive Brief:
- Alstom SA announced Thursday that it will exit three joint ventures with GE, requiring the American conglomerate to pay $3.1 billion.
- The joint ventures, which were set in place as part of GE's 2015 purchase of Alstom's energy business, focused on renewables, nuclear generation and the grid.
- Transfer of the interests is set for October, and Bloomberg reports it puts pressure on GE due to slumping cash flow. Shares of both companies were flat, following the announcement.
Dive Insight:
Alstom is exercising its right to exit the joint ventures, in order to focus on its railway manufacturing equipment business. Its departure will have no operational impact, as GE already has control. The businesses structure was created as part of GE's 2015 $10 billion purchase of Alstom Energy. It was developed, in part, to address concerns by the French government about giving up control over the country's nuclear generators, and the industry and jobs around them.
At one point, France's government gave itself the power to veto the deal, based on the nuclear sector's importance.
The acquisition was primarily aimed at gas turbine manufacturing, but GE made the move after the industry peaked; sales have struggled as renewables have surged.
In February, GE announced a new strategy with regard to energy storage, creating a new internal unit within its Power company. The new unit combined some personnel from GE’s Current business unit and microgrid experts from Alstom.
Last year the company announced it would eliminate 12,000 jobs from its power division, a reaction to the downturn in the market for conventional generation equipment like gas turbines. Prior to that, GE had refocused the company on three sectors: aviation, healthcare and power. It was also forced to make $3.5 billion in “structural cost reductions” in an effort to realign the company.
Last November, GE's new CEO John Flannery, acknowledged the business purchased from Alstom had a “single-digit return right now, disappointing, below expectations.”
“We understand very clearly that the gas markets are challenged by renewable penetration,” Russel Stokes, head of GE’s power unit, said during the investor update call.
