Drat! Foiled again! I imagine that was the reaction over at General Electric
As recently as last week, the bidding to buy the unit was heating up, with GE and Eaton
As we've been discussing lately, GE is in the midst of a major move to downsize its troubled finance division in favor of its core manufacturing business. It's made billion-dollar inroads into the energy sector as it competes with the big boys of the industry, Schlumberger
Since GE is already a customer of BAE, and since it's paying BAE to build the electronic controls for GE's airplane engines, buying PS would make for a good case of vertical integration.
There was just one problem: the price.
My kingdom for a pencil sharpener!
When we first learned of this spinoff back in September, rumor had it that BAE would seek the princely sum of 10 times EBITDA for its unit. (BAE itself cost only four times EBITDA at the time.) By last week, though, BAE was overheard pleading with potential purchasers to "sharpen their pencils" and make a better offer.
It appears the deal has fallen through, then, for want of a pencil sharpener. This week, we learned that the PS bidders wanted to pay less than nine times EBITDA. BAE insists that it simply changed its mind: "We've always said it was a strong business and we did say there was no guarantee we'd sell it." But to this Fool, it seems more likely that price was the sticking point. BAE wanted GE and friends to overpay for its supposed crown jewel. The buyers balked.
If that's truly why the sale fell through, I'd like to congratulate GE. No amount of "synergies" can offset a too-high price. Valuation always matters, and I'm glad that GE seems to have remembered that.
Fool contributor Rich Smith does not own shares of any company named above. General Motors is a Motley Fool Inside Value recommendation. The Fool owns shares of Schlumberger. 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.