Mergers

Areva Unit Goes to French Buyers


By Gianluca Baratti (Bloomberg) — Alstom (ALO:FP) and Schneider Electric (SU:FP) said they are in exclusive negotiations with Areva (CEI:FP) of France for its power-grid unit, knocking out overseas bids from General Electric (GE:US) and Toshiba (TOSYY:US). Alstom, which makes high-speed trains and energy-generation equipment, and Schneider, a maker of electrical circuits, bid 4.09 billion euros ($6.14 billion) for Areva T&D, the nuclear-reactor company said Nov. 30. The French state, which owns 91% of Areva, expects to complete the transaction in 2010. The sale keeps the third-largest provider of power transmission and distribution equipment in French hands and returns parts of the business to Alstom, which had sold the unit to Areva for 920 million euros in 2004 to help avoid collapse. GE said it was "disappointed in the outcome," after Chief Executive Officer Jeffrey Immelt had traveled to Paris to help clinch the deal in negotiations with the French government. "Alstom's win allows the French Industrial Jewel to regain some of the luster it lost and participate in the rapid build-out of new transmission infrastructure in emerging countries," Ben Elias, analyst at Sterne Agee & Leach, said in an e-mail. Elias has a "neutral" rating on Areva stock. Shares RiseAlstom rose as much as 3.12 euros, or 6.7%, to 49.75 euros in Paris, and traded at 49.23 euros as of 11:16 a.m. Schneider advanced as much as 4.8% to 76.4 euros. The two stocks were the best performers on France's CAC40 Index. The two companies said they will divide the unit, with Alstom taking the transmission business, which accounts for two-thirds of T&D, and Schneider owning the distribution business. The decision to pick the French team followed an examination of the bids yesterday, Areva said. Paris-based Areva trails ABB Ltd. and Siemens in the global power-grid market. President Nicolas Sarkozy orchestrated the sale to Areva in 2004 as finance minister to avert Alstom's breakdown, and Areva is now selling it on to fund expansion in the global nuclear power market. "The Alstom-Schneider offer appeared as the most favorable regarding the criteria set by Areva and the state, which was to respect the patrimonial interests of Areva and the development of industry and employment," Finance Minister Christine Lagarde said in a statement late yesterday. The transmission and distribution market's growth is tied to overall power demand, which Areva estimates will double by 2030. Areva operates in more than 100 countries. Growth MarketTransmission and distribution, which builds and operates electricity grids, accounted for 38.5% of Areva's sales last year. The global economic slump and startup costs for plants in India and China narrowed the operating margin at the unit to 7.1% in the first half from 11.1% a year earlier, Areva said on Aug. 31. "Regaining control of Areva Transmission would enable Alstom to again provide a complete power offering to its utility customers by also connecting the new power plants built to the grid," Société Générale analysts Gael de-Bray and Roderick Bridge said in a note. They advise investors to hold Alstom shares, and rate Siemens as their preferred stock. Areva Chief Executive Officer Anne Lauvergeon wants to raise as much as 10 billion euros to expand its nuclear business in the next two years. The company, which built 91 of the world's 439 active nuclear reactors, predicts global demand for nuclear power will grow 5% each year until 2030, almost tripling from present levels, and targets building one-third of new reactors. "Strategic Error"To help raise funds, Areva plans to sell a 15% stake to investors after the sale of the unit. The company reiterated yesterday it will seek new partners in return for funds. The disposal of transmission and distribution drew internal opposition. The unit's CEO, Philippe Guillemot, and other members of the division's executive committee wrote in an open letter printed in Les Echos newspaper on Nov. 25 that the sale would benefit Siemens and ABB. None of the offers "take into account the employees' considerations," the European Works Council representing 15,000 Areva employees said. The sale is a "strategic error" and makes no financial sense, council secretary Maureen Kearney said at a press briefing in Paris today. Workers will consider ways to challenge the transaction, representative Mick Holmes said. Alstom has undertaken "strong commitments" with Schneider regarding employees at Areva's power-grid subsidiary, it said in a statement today. There will be no site closures at the transmission and distribution unit up until 2013 and there is "no mass redundancy plan," it said. GE spokesman Jim Healy declined to comment. Toshiba spokesman Keisuke Ohmori said the company is informed on Areva's decision and declined to comment further. —With assistance from Pavel Alpeyev in Tokyo, Rachel Layne in Boston, and Ben Livesey in London. Editors: Andrew Noel, Benedikt Kammel. To contact the reporter on this story: Gianluca Baratti in Madrid at +34-91-700-9617 or gbaratti@bloomberg.net.

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