- A major consolidation in the power generation industry
- Massive base for breakthrough R&D
- Successful track record in merging cultures
Brussels/Zurich/Paris, March 23 - ABB and ALSTOM today announced the merger of their power generation businesses in a 50-50 joint company, to be called ABB ALSTOM POWER.
The new company will employ some 54,000 people in more than 100 countries. Among the world leaders in all its businesses, ABB ALSTOM POWER's 1998 pro-forma revenues amount to about US$ 11 billion (Euro 9.9 billion) (US$ 8 billion/Euro 7.2 billion from ABB and US$ 3 billion/Euro 2.7 billion from ALSTOM).
In a steadily growing market, the new company can better respond to the changes and opportunities created by privatization and deregulation, thanks to the complementary product ranges, geographic scope and R&D capabilities of its parent companies. In 1998 pro forma figures, ABB ALSTOM POWER invested about US$ 700 million (Euro 630 million) in total R&D, equivalent to 6-7 percent of revenues.
Improvements in efficiency and productivity and economies of scale are expected to yield synergy effects of about US$ 450 million (about Euro 400 million) annually within 3-4 years.
The merger is subject to the customary approvals.
"To be a successful leading player in this demanding and dynamic market you need a comprehensive range of products and solutions, a commitment to technological renewal, and global presence. This capability mix, coupled with economies of scale, will enable competitive cost levels," said ABB President and Chief Executive Officer Göran Lindahl. "We are convinced that ABB ALSTOM POWER will be successful. It will, in short, be the most complete power generation company in the world."
"Technological breakthrough is key to anticipate customer demands and ensure long-term profitable growth," said Pierre Bilger, Chairman and Chief Executive Officer of ALSTOM. "The joint company will be a strong R&D powerhouse. ABB ALSTOM POWER will benefit from its parent companies' proven capabilities to successfully integrate businesses from different cultures. In return, this move will be a strong accelerator for the performance of both parent companies."
The new company will comprise all of ALSTOM's Energy Sector activities, including industrial gas turbines but excluding the General Electric-based heavy duty gas turbine business (above 20 megawatts), which ALSTOM is divesting to GE. ABB ALSTOM POWER will also comprise all of ABB's Power Generation Segment, excluding its nuclear activities - today mainly fuel processing and service - and its service- and financing-based distributed power business.
To compensate for the difference in the size of the contributed businesses, ABB will receive a cash compensation from ALSTOM of US$ 1.5 billion (Euro 1.4 billion). Considering the strong balance sheet of the new joint company, ABB and ALSTOM do not foresee any need for further capital injections.
The President and Chief Executive Officer of the new company will be Claude Darmon, presently Deputy CEO of ALSTOM. The Management Board will initially have 2-3 other members and may be expanded later. A separate announcement will be made in due course. The Chairman of the Supervisory Board will be Göran Lindahl, President and CEO of ABB. The new company's Supervisory Board will consist of six members, three designated by ABB and three by ALSTOM.
ABB ALSTOM POWER will be registered as a Naamloze Vennootschap (N.V.) in the Netherlands and will consolidate its accounts in the euro, with the fiscal year matching the calendar year. The head office will be located in Brussels when operations begin, although management may later decide on another permanent location.
In anticipation of the establishment of the new joint venture, management in the parent companies will immediately start planning the integration process. Over the next three years, the objective is to substantially increase the joint company's margins and to achieve above-average profitability.
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