General Electric Co (GE.N) has agreed to buy a unit of South Korea's Doosan Engineering and Construction Co (011160.KS) that produces key components of combined-cycle power plants, the head of the U.S. company's power division said on Tuesday.
The $250 million acquisition, which is subject to approval by regulators and Doosan shareholders, builds on GE's $13.9 billion purchase of Alstom's energy business last year, adding capacity for engineering and manufacturing of heat recovery steam generators used to boost the efficiency of commercial power plants, Steve Bolze, chief executive of GE's power business, said in an interview.
While not large in size - the Doosan unit has about $200 million in annual revenue, compared with $29 billion for GE's power unit - GE expects Doosan will increase the amount of equipment it sells with new power plants. It also will help lower costs, increase service revenue and allow GE to use engineering and software to raise plant efficiency, Bolze said.
Demand for HRSG systems as part of GE's power plant sales "is more than doubling ... so we need more capacity," Bolze said.
The lower costs were expected to flow from expanding in a relatively low-cost region.
"This will be a double-digit return for GE," Bolze said.
Doosan's HRSG business, started in 1977, includes a factory in Korea and two in Vietnam, and employs more than 1,400 people, including engineers and production workers, GE said.
No significant job reductions were expected at either company as a result of the transaction, Bolze said.
Doosan HRSG was already a supplier to GE and the assets would be folded into GE Power, along with Alstom's HRSG business.
"We're bringing that into GE to expand our capacity and capability," Bolze said.
As GE shifts from selling gas-powered turbines to full gas-powered plants, "we're almost doubling the size of dollars that come into GE from an existing plant in terms of content."
GE expects high-efficiency gas plants to play the biggest role in meeting global power demands that are expected to grow by 50 percent in the next 20 years.
Heat recovery steam generators are large systems, typically 10 stories tall, that take exhaust heat from the gas generator and use it to generate additional power, increasing efficiency.