ABB and Alstom revealed this week that they are to merge their electricity generation businesses to form the world’s largest power plant manufacturer, with a turnover of e9.9bn (£6.61bn).
The company will leap over General Electric to take the number one spot.
Alstom, whose power division had sales of e2.7bn in 1998, will pay ABB e1.4bn to compensate for the difference in size of the contributed businesses.
The 50-50 joint venture will take in all Alstom’s energy sector activities apart from its large gas turbine business, which relies on GE technology that competes directly with that of ABB. Alstom will sell this business to GE for $910m.
The rest of Alstom’s turnkey contracting operation for large power plants will merge with ABB’s in the new company.
A survey of 52 independent power producers by market analysis firm Datamonitor rated ABB as the top supplier. GE was second.
ABB’s nuclear activities primarily fuel processing and services are excluded from the deal.
Efficiency improvements and economies of scale are expected to provide savings of e400m annually within 3 4 years, after a one-off charge of e600m.
Goeran Lindahl, ABB’s chief executive, said there would be job cuts among the 54,000 employees involved about 16% of whom are in the UK but added they would not be dramatic ‘with a few exceptions’.
The deal, which is subject to regulatory approval, accelerates consolidation in the sector as the collapse of the Asian market has put a squeeze on margins. Last year, Siemens agreed to buy Westinghouse Power Generation from CBS for $1.2bn.
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