General Electric Company (NYSE: GE) has recently agreed to purchase the heat recovery steam generators of Doosan Engineering and Construction company of South Korea for approximately $250 million.
The mentioned unit is a key component for the combined-cycle power plant of the conglomerate. However, the agreement is still subjected to regulatory authorities and Doosan shareholders’ approval and is anticipated to materialize during the second half of 2016.
Doosan Engineering and Construction Company is already a supplier to GE for its heat recovery steam generator systems. After the purchase, General Electric is anticipated to align it into the HRSG system unit of Alstom. This will help in cutting down costs, as well as boosting the efficiency and service revenues for GE. Moreover, Doosan is anticipated to improve the existing HRGS engineering and manufacturing capacity of the conglomerate, aiding it align with the demand for heat recovery steam generator systems.
Under the strategic plan of GE to turn its focus back to its industrial roots, the plans of the company to shift away from selling gas-powered turbines to full gas-powered plants. General Electric believes that the purchase will increase the amount of equipment it sells. Currently, the HRGS system of South Korea’s Doosan produces revenues of approximately $200 million every year.
GE anticipates that extremely efficient gas plants will play a crucial role in achieving the demand for power all over the world. According to the conglomerate, energy consumption is anticipated to increase by over 50 percent within the next 2 decades. Just recently, GE also inked an agreement with the government of Iraq to aid in improving the power production capacity of the country.
With regards to consolidation efforts, the conglomerate’s Chief executive of Power Business Mr. Steve Bolze stated, “We’re bringing that into GE to expand our capacity and capability….. We’re almost doubling the size of dollars that come into GE from an existing plant in terms of content.”
This announcement came after the increasing efforts of the company to turn its focus towards its industrial business. Moreover, the purchase would complement General Electric’s acquisition of the energy business of Alstom last year for about $13.9 billion.
Additionally, GE has already made great progress when it comes to its strategic overhaul through the divestment of a substantial amount of its financial assets, as well as making additional consolidation measures for industrial firms. In just more than a year, General Electric has inked deals amounting to over $166 billion of its planned $200 billion in ending net investment, which it has planned to let go.
The corporation has also stated its plans of not issuing further debt for the next several years. GE was able to raise about $749 million just recently through selling its Czech banking unit shares in a public offering. With up to 80 percent of its financial assets gone, the company has filed a request with the Financial Stability Oversight Council to eliminate its status of being a Systemically Important Financial Institution. General Electric anticipates that it will obtain a favorable response from the regulatory body as early as summer this year.
As of 9:48 AM GMT -4 on May 11, the GE stock is changing hands at $30.55, up by 0.25 percent or 0.08.