Was $57 Billion in Cash Burning a Hole in General Electric Company's Pocket?

GE is tapping into a war chest of cash to acquire Alstom. Is this the best move for shareholders?

Jun 23, 2014 at 6:15PM

Hq Upstatenyer Large

Former GE headquarters building. Source: Wikipedia/UpstateNYer.

Back in April, General Electric (NYSE:GE) established a budget for potential acquisitions in the year ahead. The ideal price tag, as laid out by GE's CEO Jeff Immelt, was anywhere between $1 billion and $4 billion. But Immelt also noted that the company would be "opportunistic" if a larger acquisition happened to present itself, and sure enough -- only a few days later -- it did. 

In the months that followed, GE entered into a quasi-bidding war over Alstom, which is an industrial outfit that, for all intents and purposes, is the "General Electric of France." GE wanted to acquire Alstom's power and grid business, in particular, and was willing to pay upwards of $16.9 billion to do so, a price well beyond its predetermined range.

Accordingly, shareholders and analysts have scrutinized the deal since the day it first made headlines, wondering whether GE's massive $57 billion foreign cash balance was burning a hole in its pockets and thereby tempted Immelt to go shopping in Paris. Is their evidence, in fact, that GE stretched outside of its comfort zone to deliver its largest deal ever?

In the following video, Motley Fool senior manufacturing specialist Isaac Pino dissects the ins and outs of the Alstom transaction and sheds some light on whether this was the best move for GE. Perhaps more important, was it the best long-term move for GE's shareholders? Click on the video below for insight into GE's decision and the possible alternatives that could have unfolded.

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Isaac Pino, CPA, 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.

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