General Electric Drags on Dow as Alstom Deal Gains Approval

GE's stock is down today, but the company is better off after buying most of Alstom.

Jun 23, 2014 at 3:30PM

The Dow Jones Industrial Average (DJINDICES:^DJI) has fallen 0.14% near the end of this week's first day of trading, a modest decline as investors weigh new economic data. Existing-home sales rose to an adjusted annual rate of 4.89 million in May, the highest level in seven months; however, that coincided with the existing-home inventory rising to 2.28 million, the most in nearly two years.

Housing has been held back recently by a weak economy and, until recently, rising interest rates. But rates have fallen and unemployment slowly creeps lower, so housing is picking up again. Just don't expect that to last for long, as interest rates are expected to rise over the next two years, which will hold back a prolonged recovery and lead to more choppy data from housing.  

On the company side, General Electric (NYSE:GE) remained in the headlines over the weekend as it moved closer to acquiring the energy assets of French conglomerate Alstom.

GE moves closer to a major acquisition
GE over the weekend received approval for the deal from the Alstom board of directors and the French government. Under terms of the deal, GE will buy Alstom's coal and gas turbine business and form joint ventures for the renewable energy, steam turbine, and electrical transmission businesses. Alstom will also buy GE's rail-signaling business for $825 million.  

The complexity in recent weeks centered around the French government's insistence that it get a 20% stake in the remaining Alstom, which will be done through an option agreed to after GE's acquisition is complete. Considering these joint ventures and the cash acquired, GE's out-of-pocket cost will be about $10 billion in cash, not the total enterprise value of $16.9 billion.  

Screen Shot

A visual showing GE's Alstom acquisition. Source: General Electric. 

This will bring GE to collecting 70% in earnings from industrial profits, as planned by CEO Jeff Immelt. That reduces its reliance on financial services for earnings, which caused a lot of problems during the financial crisis.

Alstom doesn't fundamentally change an entity of GE's size, but it should solidify the company's strategic position in wind turbines, grid services, and power plants. When combined with $1.2 billion in anticipated cost savings this should be a good deal for shareholders. GE's shares may be down 1% today to drag on the Dow, but the stock is a better buy today than it was a week ago now that the Alstom acquisition has been agreed upon.

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Travis Hoium manages an account that owns shares of General Electric Company. The Motley Fool owns shares of General Electric Company. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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