GE's (GE) Move to Acquire LM Wind Power Helps to 'De-risk' Supply Chain - RBC Capital

October 11, 2016 10:46 AM EDT
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RBC Capital affirms General Electric (NYSE: GE) at Outperform with a price target of $36 after the company announced plans to acquire LM Wind Power for $1.65 billion.

The firm commented on the deal: Given that LM Wind Power was the largest supplier of rotor blades for GE (which does not produce any blades in-house), this deal effectively in-sources another component of the design and manufacturing of GE’s wind turbines within the Renewable Energy segment. In our view, this vertical integration helps “de-risk” the supply chain for GE and reduce costs in the wind turbine manufacturing process. In addition, management believes it can increase the energy output of its wind turbines to create value for customers. The transaction multiple of 8.3x pro forma 2016 EBITDA is reasonable in our view, and consistent with GE’s prior vertical integration deal of Avio Aero for 8.5x in 2013. The deal is expected to be accretive to earnings in 2018, following a targeted completion date in 1H17. Since 1978, LM Wind Power has produced over 185,000 blades and manages a global manufacturing footprint of 13 factories in 8 countries. Importantly, LM Wind Power is expected to operate as a standalone unit within GE Renewable Energy and still supply wind turbines to others OEMs in the industry besides GE.

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