General Electric Co. (IW 500/5) is nearing an agreement to sell its industrial-solutions business to ABB Ltd. in a deal valued at $2.5 billion to $3 billion, people with knowledge of the matter said.
The American and Swiss companies are likely to announce an agreement by next week, said the people, who asked not to be identified because talks are private. ABB doesn’t comment on rumors and speculation, a spokesman said. A representative of GE didn’t immediately reply to a request for comment.
ABB shares fell 0.3% to 23.92 Swiss francs at 12:25 p.m. in Zurich, giving the company a market value of 51.9 billion francs (US$53.5 billion). GE shares rose 1.8% Thursday to $24.75 in New York.
The decision caps a months-long bidding process after GE put the electrical-products unit up for sale in December. The two companies have been finalizing contractual agreements for the supply and services of future equipment, the people said, and talks could still be delayed or fall apart.
The sale is poised to be the first major portfolio change under GE’s new chief executive, John Flannery, who took the reins Aug. 1. Under former CEO Jeffrey Immelt, the Boston-based company tilted toward high-margin equipment manufacturing in recent years while jettisoning most finance and consumer operations.
Flannery, who handled mergers and acquisitions for GE in 2013 and 2014, is looking to strengthen operations and boost a lagging stock price as shareholder Trian Fund Management pressures the company to improve performance. GE agreed in March to deepen its cost-cut targets after consulting with Trian, an activist investment firm co-founded by Nelson Peltz. Flannery has said he’ll lay out his plans for GE and the portfolio in November.
Less Glamorous Divisions
Industrial solutions, one of GE’s smaller and less glamorous divisions, sells electrical-distribution products such as circuit breakers and switchgear. The business 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%. Besides unloading that division’s industrial-solutions business, GE has also put its iconic light-bulb manufacturing operations on the market. The company is combining energy connections with GE Power.
GE has said the industrial solutions deal would probably close this year or in early 2018. Proceeds from the sale and from the disposal of a separate water unit will be used to fund restructuring, the company has said.
The deal comes after ABB bought an Austrian industrial-software company for about $2 billion to bolster its automation business. Zurich-based ABB, the world’s largest supplier of power grids, has faced calls from activist Cevian Capital AB to strengthen its portfolio.Following the automation deal, ABB CEO Ulrich Spiesshofer told reporters that the company would continue to look at acquisitions, which he called “one of the drivers of growth going forward.”
By Aaron Kirchfeld, Ed Hammond and Richard Clough