In early 2002, General Electric (GE) announced that it was buying the BetzDearborn water treatment unit of Hercules, a company facing severe financial difficulties. While some transactions such as this use a combination of stock and cash (with the acquiring company taking on debt to finance the purchase), GE's financial situation made it possible for the company to purchase BetzDearborn for $1.8 billion in cash (Bowe, 2002, p. 16), assuming no new debt and issuing no new stock. BetzDearborn generates sales of $1.8 billion, which means that the cost to GE was only a 1.8 multiple of sales. These seem favorable terms to GE, but the benefit to Hercules is the immediate inflow of much needed cash to the organization.
For Hercules, the deal was beneficial because it offered a significant cash infusion into a cash-strapped organization. Although it remains unclear whether Hercules will be able to survive even with the restructuring (and elimination of BetzDearborn from its operations), the transaction increases the likelihood that the company will be able to move forward.
Although GE has made numerous acquisitions in recent years, it does so in order to improve its market share or to enter new markets quickly. In the case of BetzDearborn, GE's interest can be attributed directly to the company's move into expanding its specialty materials unit. In addition, the move indicates that GE might be able to serve as a consolidator in this "highly fragmented industry," (Bowe, 2002) something that would benefit GE and possible customers in the industry, although it could prove problematic for current competitors since GE is a formidable organization against which to compete.
Reaction to the announcement from the GE perspective was negligible. Although the business press generally favored the transaction, noting that it would give the company rapid entrance into this industry segment (), the transaction was actually qui
...