The General Electric Company (GE) (traded as NYSE:GE, Dow Jones Ind. Average Component and S&P 500 Component), the best known American energy multinational conglomerate company in the world, announced this Tuesday that has signed a deal with the South Korean company Doosan Engineering & Construction to buy a power plant unit, more specifically their Heat Recovery Steam Generator (HRSG), for 250 million dollars. In this unit are produced key components of combined-cycle power plants.
This components produced are a very important part in the boosting of the power plant’s efficiency, helping to generate up to 33 percent of the overall power output and boosting. They are very large systems that are capable to take the exhaust heat (that is a result of the energy production) from the gas generator, turning that heat into additional power.
GE power, the world leader in energy production from a wide variety of fuel sources, has managed, this way, to make a better offer than Morgan Stanley Private Equity. This deal is yet to be approved by regulators in South Korea and Doosan shareholders will also have to vote to approve the proposed spin-off and it is expected that the transaction will be consumed in the second half of the year.
The Doosan Engineering & Construction HRSG is active and operating since 1977, employing more than 1,400 people. They are specialized in engineering, product manufacturing and project management and have already successfully installed HRSG’s technology domestically (for the Boryeong, Busan and Incheon combined-cycle power plants) and all over the world (in European, Asian and African continents).
Steve Bolze, president and Chief Executive of GE Power, said “The Doosan Engineering & Construction HRSG will help us meet our forecasted growth and better manage costs by increasing our global manufacturing capacity and further complementing our existing HRSG technology. We’re also gaining a talent pool that is one of the best in the world”. This means that this plant will help increasing engineering and production capacity to meet the strong demand and will also provide added global manufacturing footprint and technology. It also serves as a complement to the technology already available with the purchase of Alston’s Energy last year (this company was bought for 13.9 billion dollars). Fortunately, no job reductions are expected as a consequence of the deal. They have supplied General Electrical in the past and they have also been a long term licensee of Alstom technology until 2007, so this company had already a strong connection with GE.
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Although this unit’s annual income (200 million dollars) isn’t nothing compared to the General Electric Power’s annual revenue (of about 29 billion dollars), it was a great acquisition for GE Power since the demand for heat recovery steam generators has more than doubled recently, also doubling General Electric’s capacity and efforts at this level, helping lowering manufacturing costs while increasing revenue, allowing them to be better and faster in meeting the customer’s needs. The operational costs should also become lower, but this will only start to be achieved when General Electric expand to low-cost regions.