General Electric Company (NYSE:GE) announced its intent to purchase LM Wind Power, a Denmark-based manufacturer and supplier of rotor blades to the wind industry, for $1.65 billion (€1.5 billion). The deal in-sources wind turbine blade design and manufacturing for GE’s Renewable Energy business, improving its ability to increase energy output and create value for onshore and offshore customers. Since 2001, LM Wind Power has been owned by Doughty Hanson, a leading London-based private equity firm.
The acquisition is valued at 8.3 times pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) (2016 estimate). The transaction is subject to customary regulatory and governmental approvals and GE expects to close the transaction in the first half of 2017. GE expects the acquisition to be accretive to earnings in 2018.
As the cost of electricity from renewable sources continues to decline and nations pursue low-carbon forms of energy, renewable sources are gaining share in power generation capacity. In 2015, approximately 50% of all new electricity capacity additions were renewable energy sources, with wind representing 35% of that growth.
Jérôme Pécresse, President and CEO of GE Renewable Energy said, ”Increasingly, wind turbine innovation is driven by system design, materials science, and analytics — all elements of the GE Store. We, along with LM Wind Power, have a deep pipeline of technical innovations that can further reduce the cost of electricity. With our combined global footprint, we can build flexible solutions for customers around the world. This combination will help sustain growth in the wind power industry.
“The acquisition of LM Wind Power, a leading supplier to the wind industry, will help us deliver on that goal. Simply stated, we’ll be more local, have more flexibility and knowledge in turbine design and supply, and more ability to innovate and reduce product costs, while improving turbine performance. We will also develop enhanced digital and services capabilities. All of which will be good for customers, competition in the industry, and the growth of wind power globally.”
Marc de Jong, CEO of LM Wind Power, said “This deal will merge the speed and focus of LM Wind Power’s entrepreneurial culture with GE’s world-class engineering and operational capabilities. Our two organizations are highly complementary and the transaction positions us well to respond faster to customer needs and enhance performance of wind turbines to ultimately reduce the cost of energy. We look forward to working closely with the GE Renewable Energy team to accelerate our growth strategy and continue to deliver greater value to all our customers.”
With over three decades of experience and 190 patents, LM Wind Power is a leading supplier of blades for the wind turbine industry, offering blade development, manufacturing, service and logistics. Today, GE is not producing blades and LM Wind Power is its largest blade supplier. Since 1978, LM Wind Power has produced more than 185,000 blades, corresponding to approximately 77 gigawatts (GW) of installed wind power capacity, which can each year effectively replace approximately 147 million tons of CO2. Their success was achieved through a commitment to continuous improvement, quality, cost, research, product development, and excellent customer relationships and service.
LM Wind Power’s global manufacturing footprint includes 13 factories located on four continents in 8 countries including Denmark, Spain, Poland, Canada, USA, India, China and Brazil, in or close to key wind power growth regions to effectively serve its customers.
Pécresse stated, “LM Wind Power has a terrific team, with a strong passion for their mission to power a cleaner world. Their values of customer-focus, teamwork, trust, and ownership are harmonious with our own values. I’m very optimistic that together we will help shape the future of energy.”
GE Renewable Energy is expected to sustain a solid growth rate over the next few years. The integration with Alstom Power is on track and global demand is robust. The business can fully leverage all elements of the GE Store. GE expects sustainable growth in margins and returns.
Following the closing of the deal, GE intends to operate LM Wind Power as a standalone unit within GE Renewable Energy and will continue to fully support all industry customers with the aim of expanding these relationships. GE will also retain the ability to source blades from other suppliers. LM Wind Power will continue to be led by its existing management team and be headquartered in Denmark, where it also maintains a global technology center. (Original Source)
Shares of General Electric closed yesterday at $28.86, down $0.22 or -0.76%. GE has a 1-year high of $33 and a 1-year low of $27.10. The stock’s 50-day moving average is $30.30 and its 200-day moving average is $30.50.
On the ratings front, General Electric has been the subject of a number of recent research reports. In a report issued on October 6, Merrill Lynch analyst Andrew Obin reiterated a Buy rating on GE, with a price target of $37, which represents a potential upside of 28.2% from where the stock is currently trading. Separately, on the same day, Morgan Stanley’s Nigel Coe maintained a Hold rating on the stock and has a price target of $31.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Andrew Obin and Nigel Coe have a total average return of 6.5% and 1.3% respectively. Obin has a success rate of 59.5% and is ranked #923 out of 4184 analysts, while Coe has a success rate of 56.7% and is ranked #1683.
The street is mostly Bullish on GE stock. Out of 11 analysts who cover the stock, 5 suggest a Buy rating, 4 suggest a Hold and 2 recommend to Sell the stock. The 12-month average price target assigned to the stock is $31.80, which implies an upside of 10.2% from current levels.