Alstom Acquisition Coming Together for General Electric
Dow Jones Industrial Average declined slightly in Monday's trading session after both the Dow and S&P 500 posted gains for previous six consecutive days. Despite the small breather by the Dow today, investors had some positive news on the housing front. Existing-home sales increased 4.9% in May to a seasonally adjusted annual rate of 4.89 million, according to the National Association of Realtors. That was above The Wall Street Journal forecast of 4.75 million for the month, and it was the biggest increase since August 2011. That makes it the second consecutive month of sales gains after the first three months of 2014 saw declines.
With that in mind, here are some companies making headlines in the markets today.
Inside the Dow, the final pieces of the puzzle are falling in place for General Electric's historic acquisition of Alstom SA's energy assets. General Electric's nearly $17 billion purchase of the assets became trickier after the French government stepped in to ensure the company would receive a better offer from GE, even if the price tag didn't move higher.
Now that industrial group Bouygues, the largest single shareholder of Alstom, has agreed to sell as much as 20% back to France, it should remove the last barrier for the deal to be finalized. That means General Electric will get the prize it desired all along: Alstom's gas turbine operations and long-term contracts with a valuable customer base. General Electric will also create joint ventures in the steam turbine, renewable-energy, and electrical-transmission businesses. Also, as part of the concessions General Electric made along the way, GE will sell its rail-signaling operations to Alstom for $825 million.
Prior to the deal being all but finalized, many viewed the deal as hugely positive for General Electric.
"Acquiring Alstom would put an exclamation point on GE's return to deals," said Bernstein analyst Steven Winoker, according to Barron's. "It is among the best fits we have seen with the GE portfolio for some time."
General Electric's acquisition of Alstom will become its largest deal in company history. It will instantly add to earnings in its first year, and it's expected to add $0.08 to $0.10 per share in 2016. General Electric is also optimistic it can improve the energy assets' margins from 7% to 10% and generate $1.2 billion in cost synergies by year five.
Outside the Dow, Tesla Motors received another vote of confidence this weekend when Morgan Stanley analyst Adam Jonas released a new report to investors.
"Not even two years after the delivery of the first Model S, Tesla Motors has transformed from fledgling start-up to arguably the most important car company in the world. We are not joking," Jonas wrote, according to the Los Angeles Times. "Tesla is also emerging as an emblematic force in America's effort to foster high tech manufacturing job growth."
The young electric vehicle is definitely in a period of excitement, as the company is just now creating a pipeline into China to sell its Model S, and ground is expected to break soon on one of at least two "Gigafactories" that are expected to boost Tesla's battery production enough to supply 500,000 vehicles by the end of the decade. Tesla's $5 billion investment in the battery factory is also expected to drive the costs of its 60 kilowatt-hour battery packs down by 30%, which will be a vital reduction if the company realistically expects its next-generation car to sell at a lower mainstream price point.
While Tesla's valuation is arguably far ahead of its present-day worth, investors are seemingly shrugging that off for the company's huge potential to disrupt the automotive industry in the decades ahead.
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The article Alstom Acquisition Coming Together for General Electric originally appeared on Fool.com.Daniel Miller has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of General Electric Company and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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