GE Expands Mining Equipment Portfolio With Fairchild Acquisition

General Electric (NYSE:GE) has completed its acquisition of Fairchild International, a mining equipment manufacturer. ^[1] The acquisition will not only expand GE’s portfolio of offerings for the mining industry, which is poised for growth over the long term driven by demand from emerging economies, but also provide a larger presence in growth markets such as China and Brazil as Fairchild International has a strong client base in these countries. The company aims to drive revenue growth from the acquisition to help arrest the continuing decline in top-line. The decline is in part attributable to major divestitures, including that of NBC Universal.

We currently have a stock price estimate of $20 for the company, 5% below its current market price.

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Fairchild International and benefits it brings to GE

Fairchild International manufactures underground mining vehicles and mining equipment, including diesel and battery-powered scoops, continuous miners, haulage systems and shield haulers. GE Mining, on the other hand, is a business unit of GE Transportation and currently provides solutions for the mining industry focused on power, water and productivity applications. Hence, the acquisition is a strategic fit for GE Mining

In addition, the synergies bring three major benefits to GE.

First, an expanded product portfolio that will help the company compete more effectively against the leading players in the mining equipment industry such as Caterpillar (NYSE:CAT), Mitsubishi, Volvo, among others. Second, a larger presence in growth markets of China and Brazil as Fairchild has clients in these countries. And third, GE can cross-sell its own mining products and services to existing customers of Fairchild International.

Mining industry poised for long term growth

GE is also in the process to acquire Industrea Ltd, another mining equipment manufacturer with significant presence in growth markets, including China. With these two acquisitions, GE is looking to expand its customer base beyond its core market of U.S. and acquire a larger share of the growth anticipated in the mining industry over the long term. This growth is driven by the demand for mined resources in emerging economies, particularly China and India, for building infrastructure and fulfilling energy needs. In addition, with its expanded product portfolio, GE Mining will be able to address up to 35% of the underground mining value chain.

We anticipate the acquisitions to aid revenue growth for the company over the coming years, and help offset the decline in its top-line.

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1. GE Mining Completes Acquisition of Fairchild International, August 1 2012, www.genewscenter.com [↩]