GE Battles for Alstom as Siemens Wins French Support
Jeffrey Immelt is trying to defend General Electric Co. (GE)’s largest-ever acquisition, after French officials imperiled the attempt by urging Alstom SA (ALO) to consider a rival offer from Germany’s Siemens AG. (SIE)
The chief executive officer of GE is scheduled to meet President Francois Hollande today after he was rebuffed by Industry Minister Arnaud Montebourg over the weekend. Montebourg, an outspoken critic of big business in the ruling Socialist Party, said a deal with Siemens, which would entail swapping some of its rail assets for Alstom’s energy division, would create two “European champions.”
Both companies have taken steps to appease policymakers in Paris. GE argues that its plan, to acquire the energy business while Alstom’s transport unit is separated, would result in fewer job losses thanks to smaller overlaps of operations, said people with knowledge of the matter. Siemens is willing to make guarantees about jobs and executive positions, one person said, asking not to be identified discussing private information.
“None of these big players buying Alstom is going to be a smooth ride,” said Simon Toennessen, an analyst at Credit Suisse Group AG. “Siemens is seeing the competitive threat from GE as big enough to consider this step.”
Alstom, which has asked for its shares to be suspended again today, had a market value of about 8.3 billion euros ($11.5 billion) before trading was halted last week.
Alstom’s board met to examine the two approaches, and so far prefers GE’s proposal — which is a binding offer, compared to Siemens’s more informal expression of interest, the people said. However, it is also considering Siemens’s offer out of deference to the government’s wishes, said the people.
Beating GE
GE has conducted due diligence and received approval to proceed with the deal from its own board, the people said.
For its part, Siemens is making the case that an asset swap would create an undisputed European leader in rail rooted in France, bringing together the German company’s ICE high-speed trains with Alstom’s iconic TGV, the people said. The Munich-based company would become one of the world’s largest manufacturers of equipment for power plants and electric transmission.
Siemens, which was also interested in acquiring parts of Alstom over a decade ago, is willing to match or exceed the financial terms of GE’s offer, the people said. The offer from Fairfield, Connecticut-based GE values the whole of Alstom at about $13 billion excluding debt, the people said.
“Given all these new factors, is there ever going to be a transaction? That’s the new ‘if’ here,” said Nicholas Heymann, a New York-based analyst at William Blair & Co. “Siemens has basically inserted itself into the process. It officially makes the process slow down.”
Paris Meeting
Alstom, based on the outskirts of Paris, yesterday said it’s continuing to review its options and will make an announcement no later than the morning of April 30. Siemens said it’s willing to discuss “strategic opportunities” with Alstom as an alternative to a GE deal, declining to comment further. A spokesman for GE declined to comment.
Separately, Hollande said yesterday that he is meeting with Montebourg, Prime Minister Manuel Valls and Energy Minister Segolene Royal to discuss the situation. Montebourg, who postponed a meeting with Immelt that was scheduled for yesterday, will also meet the CEO today.
The French government can intervene to protect companies deemed to be of national importance from being acquired. In 2005, it passed an anti-takeover decree amid speculation PepsiCo Inc. was planning a bid for dairy-products maker Danone. GE’s own attempt to take over U.S. rival Honeywell International Inc., announced in 2000, was derailed by European Union officials after GE refused to make concessions that the regulators were demanding.
French Bailout
Alstom, which had to be rescued in a 4.4 billion-euro bailout by France and banks in 2004, built France’s power grid and the generators that produce most of the nation’s electricity and has about 18,000 employees in the country.
While Hollande’s government has rarely shied away from making its views known on large transactions, its instructions aren’t always followed by French companies. Vivendi SA (VIV) this month spurned a bid for its SFR mobile-phone unit from conglomerate Bouygues SA that Montebourg had supported, opting for a rival offer from cable tycoon Patrick Drahi. Bouygues also owns a 29 percent stake in Alstom.
The French state has no direct shareholding in Alstom, although the company depends in part on orders from the government-owned SNCF railway network and from Electricite de France SA, the electric utility that’s 84 percent government-owned.
Immelt’s Plan
In making a play for Alstom’s power assets, which Berenberg Bank analyst William Mackie said could be worth as much as $14.5 billion, Immelt is looking to build on a plan to reorient GE toward manufacturing. GE Capital imperiled the company during the global financial crisis, and since then Immelt has sought to build up divisions that make capital goods like jet engines, locomotives and power equipment.
Siemens’s offer is a response to the threat that would be created on its home turf by GE absorbing most of Alstom, the people familiar with the matter said. The company is already cutting 1,400 jobs in its energy unit in Germany amid slumping demand for gas turbines in Europe.
The proposed deal coincides with the culmination of a strategy review at Siemens by CEO Joe Kaeser, who will present his findings on May 7. The 167-year-old company, which uses its peers’ earnings as a benchmark, has lagged profitability at GE for at least 24 years, according to data compiled by Bloomberg.
Source: bloomberg
