General Electric Co. buys Walter Group, a small Czech turboprop maker, to round out its aircraft engine line and go after archrival Pratt & Whitney in a segment of the business it currently dominates.
The story in Thursday's WSJ (subscription required) serves up as neat an example as you'd like of
nimble dealmaking used for competitive advantage. Chet Fuller, general manager of marketing for GE Aviation, was eager to throw down the gauntlet against Pratt & Whitney, which is owned by United Technologies Corp. "We think the world deserves a choice," he told the WSJ.
Here's GE's logic: Instead of investing maybe $350 million to develop its own turboprop, the company opted for a buy-then-build approach, acquiring Walter for less than $70 million and making plans to ramp up production and add advanced metals and designs from GE's larger engines.
But I'm curious about the rest of the story. GE's purchase is said to be essentially a real estate transaction; the owners of Walter Group wanted to use its prime Prague location for something more upscale, so apparently they kept that and sold GE everything else, most notably an already-certified engine. Wonder how the deal was structured?
Also intriguing is the question of whether Pratt & Whitney's corp dev team looked at Walter, which they presumably knew. Would it have been worth $70 million to them to block GE's thrust into a business with sales approaching $4 billion? Would they have faced antitrust problems if they had gone after Walter?
And of course there are other turboprop makers, and they have smart deal teams too. Did Honeywell International Inc. and Rolls Royce plc give any thought to doing what GE Aviation plans to do with Walter?
Finally, what if anything did Walter's owners (according to the
Walter Web site, a group called FF invest a.s.) do to take advantage of competition among these giants?
The deal closed this week, and GE says it plans to launch a revamped version of the Walter engine in late July. Sounds fast, doesn't it? -
Kenneth Klee
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