Power grids maker, ABB is set to penetrate the North American market and gain access to General Electric’s larger base of installations by buying its industrial solutions for $2.6 billion in a bid to improve margins at the unit over the next five years, the Swiss engineering company said on Monday.
Zurich-based ABB sees potential for cost benefits of $200 million with the deal for long-term use of GE’s brand and a strategic partnership. The engineering company says it will improve the margins over the next five years.
The company has reaffirmed its upgrade of old products with its technology to attract the declining U.S. market. ABB is suspending its $3 billion share buyback program as part of the deal, which will boost its position as the second-biggest supplier of electrical components.
Initially, combining with GE's unit will reduce Electrification Products' margins to below ABB's target of 15-19 percent, although ABB aims to return to that level by 2020, it said.
"Together with the GE Industrial Solutions team, we will execute our well-established plans in a disciplined way to bring this business as part of the global ABB family back to peer performance," ABB CEO Ulrich Spiesshofer said in a statement.
Products made by the GE unit include circuit breakers, switchgear and power supply equipment used for facilities including data centres. GE had resumed negotiations to sell the business to ABB after the U.S. industrial conglomerate moderated its price expectations, people familiar with the matter told Reuters in August.
