GE Sells Industrial Solutions Business as New CEO Marks New Direction

General Electric announced that it reached an agreement with Swiss industrial company ABB to sell its industrial solutions business for $2.6 billion. The division, which supplies electricity suppliers, was one of the original cornerstones of General Electric when it was founded by Thomas Edison in 1889 as a holding company for his electricity related investments and J.P. Morgan, his chief financier.

GE’s Industrial Solutions Business has revenue of about $2.7 billion per year but was seen as non-core by the industrial juggernaut. New CEO John Flannery had indicated he will refocus the portfolio of GE in addition to cutting costs. GE has already put its light bulb business for sale and Flannery has grounded the company’s corporate jets in an initial cost-cutting move. He is expected to reveal more of his strategy for the portfolio in coming months.

The deal also represented an opportunity for ABB, who felt that the non-core business for GE had been underinvested in and will be better able to compete when combined with its own electrification business, which does not have a strong U.S. presence. ABB committed to $400 million in investment for its new division. ABB’s business was second in the world and will remain so after the acquisition, to Schneider Electric.

ABB had already completed two acquisitions earlier this year: Austria’s Bernecker & Rainer and Germany’s Keymile Group. As a result of the acquisition, it also suspended its $3 billion share buyback program.

“On the face of it, we believe there was a lengthy process to reach this deal and it looks reasonable,” Morgan Stanley analyst Katie Self said in a note. “The more pressing issue at hand, though, will be around the previously announced share buyback, which ABB is now putting on hold as a result of the acquisition, news we don’t expect will be well received.”

ABB shares were relatively flat today, while GE shares rose less than 1%.

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