General Electric got its mind set on Turbomecanica

The world’s largest industrial group, General Electric, is in talks to set up a joint venture together with Romanian aeronautics company Turbomecanica Bucharest, sources close to negotiations say.

The Americans were initially planning to buy the company, but they changed their mind because of juridical complications.

General Electric is now Turbomecanica’s main client, with a weight of almost 50% in the company’s turnover. The idea to acquire the Romanian company originates in the plans of General Electric Aircraft (the group’s aeronautics arm) to considerably expand its business in Romania.

Turbomecanica is currently owned by the Employees Association – Turboact, which bought the main stake (62.54 percent) from the state last summer.

The acquisition of Turbomecanica by General Electric would have triggered the purchase of the stake held by Turboact. However, as the privatisation contract stipulates that employees are to pay for the shares for several years, they are not allowed to sell.

“Two solutions were proposed to solve the situation. According to one variant, General Electric was to help Turboact by granting a loan to the association, so that it can finish paying the shares sooner than planned. The employees were to return the money afterwards, after the shares were sold to the Americans,” the above-quoted sources say.

Discussions between Turbomecanica and General Electric are currently considering the second option: the establishment of a joint venture, where the two parties would each hold 50% of the share capital.

Turbomecanica would bring a big part of its assets to the new company, while General Electric would contribute with a capital inflow worth several million dollars. The new business would amount to tens of millions of dollars annually.

The new company will make parts and subassemblies for aircraft engines. The entire output will go to the United States, to General Electric Aircraft.

Turbomecanica stock, whish is listed on the Bucharest Stock Exchange, has been posting steady daily increases for the past month. Consequently, the share price has increased by more than 20% since the beginning of November, up to 23,500 ROL.

The current price level is double as compared to the first half of the year, pushing Turbomecanica market capitalisation up to 10.8 million dollars.