General Electric Co. agreed to sell its industrial-solutions business to Switzerland's ABB Ltd., a sign that GE's new chief is moving ahead with efforts to streamline the industrial giant.
ABB will pay for $2.6 billion for the GE unit, which makes electrical equipment for utilities, with the aim of strengthening its presence in the electrification market, where is number two globally behind France's Schneider Electric SA, particularly in North America.
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"In the U.S., we have not been as strong as we wish to be," said ABB Chief Executive Ulrich Spiesshofer, in an interview. The industrial-solutions unit wasn't a core part of GE's portfolio, but is "very core" to ABB, Mr. Spiesshofer said.
At GE, where John Flannery took the reins on Aug. 1, the new CEO has promised to review the conglomerate's operations and report on his plans by mid-November. But he isn't waiting to complete that process to sell the unit or make other changes.
Last week, GE grounded its fleet of corporate jets and is preparing to sell them. Mr. Flannery also recently delayed part of GE's new headquarters complex in Boston, a relocation initiated by his predecessor Jeff Immelt. Mr. Flannery is also moving aggressively to cut costs and trim corporate staff.
GE plans to take out $2 billion in cost by the end of 2018, it has said, and Mr. Flannery is reviewing all aspects of the company.
GE's industrial solutions business was started around 130 years ago when Thomas Edison patented the first circuit breaker, according to the company's website. The ABB deal includes a long-term right to use the GE brand.
The business supplies equipment to the electrical-distribution and grid industries. The unit has about 13,000 employees and had $2.7 billion in revenue in 2016.
ABB said it expects to save $200 million in annual costs in the fifth year after the deal closes, though it would put on hold a previously announced share buyback program of up to $3 billion. This step was needed to ensure that ABB maintains its credit rating, Mr. Spiesshofer said.
ABB shares were up 0.3% midday Monday in Europe.
Last year, GE said it would sell the industrial solutions unit, as well as its water business, to boost its profit margins by shrinking its operations. In March, GE struck a deal to sell the water business to France's Suez SA and one of Canada's largest pension funds for around $3.4 billion.
The industrial solutions sales process took longer than deal makers expected. After negotiating with strategic companies for months, GE disrupted the process and had private-equity firms take a look at the unit as well, people familiar with the matter have said.
Zurich-based ABB has a market value of $50 billion. The company has a vast array of products, ranging from motors and generators to semiconductors .
-Brian Blackstone in Zurich contributed to this article.
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(END) Dow Jones Newswires
September 25, 2017 06:40 ET (10:40 GMT)