General Electric Company and Alstom: Star-Crossed Lovers?

Source: GE.

General Electric (NYSE: GE  ) is going through a major makeover right now. And when I say "right now," I mean that it's a multiyear process with a ton of moving parts.

Four years ago, GE derived 33% of its revenue from GE Capital's financial services, 11% from entertainment division NBCUniversal, and only 56% from industrial operations. Today, NBC is long gone. GE Capital diminished to a 30% revenue share in 2013, and the other 70% flows from GE's industrial wheelhouse. In terms of profits, GE gleaned 66% of its operating income from industrial operations last year and the remaining 34% from financial services.

The long-term plan is to reach a 75% to 25% balance between industrial and financial operating profits by 2016. The company is busy buying and selling operations to reach that goal.

This strategy shift should serve GE well in the long run, enabling the company to focus on what it does best. Industrial conglomerates aren't necessarily great at running a major money-center bank.

But when the makeover process hits the occasional snag, GE investors often feel the wrath of strategy-shift skeptics. This week, for example, GE's stock has trailed its Dow Jones (DJINDICES: ^DJI  ) peers by 1.2% as an industrial buyout ran into unexpected difficulties.

GE Chart

GE data by YCharts.

GE has placed an all-cash $13.5 billion bid to acquire the energy business of France-based industrial conglomerate Alstom. The French company's board of directors likes the offer, and plans to invest the GE windfall into expanding its global transportation operations.

But the French government is not totally sold on this idea. Regulators in Paris asked GE to stretch the timeline, giving France more time to analyze the deal's impact.

So this week, GE extended the offer deadline by three weeks, to June 23. "We have done so to facilitate ongoing discussions with the government," GE said in a published statement. "The industrial project we have presented is good for Alstom, for France and for GE, and our discussions have continued to be constructive. We view this extension positively."

Indeed, the Alstom buyout just might be the final piece to complete GE's makeover puzzle. It was originally expected to close in 2015 and to immediately add to GE's bottom-line earnings. The deal should result in $1.2 billion of annual cost-saving synergies by 2020, and help GE reach that 75/25 operating profit split in 2016.


GE is casting bedroom eyes on Alstom's steam turbines, like this Arabelle colossus installed in a Chinese nuclear power plant. Source: Alstom.

GE CEO Jeff Immelt addressed the Alstom acquisition at an industry conference this week.

"Alstom allows us to accelerate our portfolio of goals," Immelt said. "It's a pure-play infrastructure play for us and it just makes things better, faster as we look forward."

The buyout plays right into GE's larger strategic ambitions. "We think it changes the portfolio," Immelt said. "Look, we just want to become a pure-play infrastructure company. ... Without Alstom, we are still going to hit 70% industrial/financial by 2016, so we had a pathway and a roadway to get there. But from a financial standpoint, it's just well priced, the synergies are good, it pays for itself quickly."

So GE's makeover is still happening, with or without the Alstom deal. The game-changing nature of this transition remains either way. The final chapter just gets written faster if the French resistance backs off, so GE investors should still hope for a quick and friendly resolution to this regulatory inspection. That $1.2 billion in annual cost savings should put a cumulative $4 billion on GE's bottom line by 2020, and the company doesn't mind sharing its riches with shareholders.

GE Dividend Chart

GE Dividend data by YCharts

General Electric investors should keep a close eye on the Alstom saga. The final outcomes of government inquiries are never a sure thing, and this one has large ramifications for the value of GE shares over the next several years.

On the upside, this squabble won't fray your nerves for long. You can get a steady flow of updates by adding GE to your Foolish watchlist -- and the final verdict is just a month away.

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