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GE's Textbook Financial Discipline In Bidding For SLM Solutions

GE's Textbook Financial Discipline In Bidding For SLM Solutions

General Electric Company (NYSE: GE) proposed in early September to acquire two suppliers of additive manufacturing equipment, Arcam AB and SLM Solutions Group for $1.4 billion.

Elliott Management, an activist investor and SLM Solutions shareholder initially opposed the deal, arguing the proposed acquisition isn't in the best interest of shareholders. In fact, Elliott Management bought additional shares in SLM Solutions to boost the size of its voting rights, which resulted in its current 16 percent of SLM.

General Electric's offer of 38 euros ($33.88) a share for SLM represented a 37 percent premium to the closing price prior to the announcement.

Last Friday, General Electric made it clear it won't change the terms and won't budge on its 38 euro per share offer.

Solid Discipline Enacted

According to Gadfly's Brooke Sutherland, General Electric showed some solid discipline in its bidding process. She noted that a company of General Electric's size could have easily doubled its bid without making the slightest dent in its $99 billion cash hoard.

Sutherland continued that there was no real reason for General Electric to boost its already generous bid, which values SLM' at 100 times its EBITDA. General Electric may have been justified in paying a high multiple because the acquisition is important for its growth, but that doesn't mean the company needs to overpay.

From Elliott Management's point of view, perhaps another industrial giant will be willing to pay more for SLM. However, General Electric's proposal was first issued in early September and no other counter bids emerged during this time period.

With no path toward an acquisition at the price General Electric wants to pay, the deal is officially dead as the activist investor garnered enough support to block the deal in a vote that required a 75 percent approval.

General Electric didn't become the powerhouse it is today by merely throwing money around and spending more than it committed to just to secure a deal.


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