General Electric Co. has agreed to a joint venture with an Abu Dhabi government investment company that will pump $4 billion of outside capital into its weakened commercial finance business, part of new global partnership to expand on GE's fast-growing sales in the Middle East.
The deal with Mubadala Development Co. will also launch or broaden several other ventures with the Persian Gulf investment vehicle, which expects to become one of the top 10 institutional investors in GE, whose businesses include light bulbs, jet engines and NBC television.
In a joint statement Tuesday, Fairfield-based GE and Mubadala said they are aiming to capitalize on strong growth opportunities in the Middle East and around the globe. The agreement provides for shared capital commitments to new joint ventures and investment funds.
"I think there's no shortage for opportunities that the joint venture can focus on," Jeff Immelt, GE's chief executive, told news reporters in a conference call.
Mubadala, based in Abu Dhabi, the capital of the United Arab Emirates, could eventually own about 120 million GE shares, which would be valued at close to $3.4 billion at current market prices, analyst Nicholas Heymann of Sterne Agee said in an investor note.
By entering into investments with a well-capitalized Middle East partner, "GE has effectively found new demand for its shares during a particularly challenging earnings period for financial services companies," Heymann said.
GE shares have tumbled by nearly 23 percent since April 11, when it announced first quarter earnings guidance that widely missed Wall Street expectations. By comparison, the Dow Jones Index has dropped by about 9 percent.
GE said at the time that it was unable to complete asset sales due to tighter credit markets. And Immelt said the near-collapse of the Wall Street investment firm Bear Stearns Cos. also hurt the performance of GE's commercial financing business.
Heymann said the deal helps GE spread its risk in financial services.
"You move more outside the U.S. into emerging markets where there's presumably more growth," he said in an interview.
GE and Mubadala plan to each allocate $4 billion in equity for the jointly owned commercial finance venture over a three-year period. The $8 billion venture will be established in the next 12 months and headquartered in Abu Dhabi. It aims to expand GE's opportunities around the globe, especially in the Middle East and Africa, and will have targeted assets of more than $40 billion.
GE also plans to commit up to $50 million for global investments in clean technology and companies that reduce dependency on traditional energy sources.
In addition, Mubadala intends to invest up to $200 million to GE Industrial Investment Partners, a new partnership of global investors that will provide capital to companies in the health care, energy and transportation industries.
Mubadala investments also include an 8.1 percent stake in computer chip maker Advanced Micro Devices, Inc. and a 7.5 percent stake in private equity company Carlyle Group.
The latest deal promises to spur more business in the Middle East for GE, which last year generated revenue of more than $5 billion, a 50 percent increase over 2006.
"This is the fastest growing region inside GE. I think we will grow even faster over time," Immelt said.
The deal will not have a financial impact this year, he said.
The investment also could boost GE's already strong infrastructure business, which makes big-ticket items like water treatment plants and locomotives and is making major inroads in developing countries. Last year, the business led the industrial and financial conglomerate with $57.9 billion in revenue, or 23 percent of GE's total revenue.
Sen. Christopher J. Dodd, D-Conn., the Senate Banking Committee chairman, said while the proposal appears to focus on investments overseas, he's hopeful it will lead to increased investment in the U.S. economy, creation of more American jobs and an infusion of capital to U.S. markets.
Shares of GE rose 64 cents, or 2.3 percent, to $28.33 in late Tuesday trade.
Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors in Cincinnati, said the deal is a good move for GE but that the politics may not be the best.
"There's potential they could be held up to some criticism, but they may be sensing there will be changes in the world after the November elections," he said. "There may be a little headwind for now."
However, the business opportunities are tremendous for GE in a large developing market, Sorrentino said.
"It will open a lot of doors to them," he said. "It's smart. It was certainly unexpected. Hats off to them," he said.
Richard Mintz, a spokesman for Mubadala, said it does not intend to file for a national security review with the Committee on Foreign Investment, a 12-agency U.S. group authorized to recommend that the White House block or alter terms of deals involving national security.
The ventures also include a clean energy technology center in Abu Dhabi, a new corporate learning program and a possible expansion of maintenance, repair and overhaul work by a Mubadala aviation company.
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AP Business Writer Donna Borak in Washington contributed to this report.
