Bloomberg News

GE Bids $17 Billion for Alstom Energy to Preempt Siemens

April 30, 2014

Wire Tubing

An Alstom employee inspects the wiring on a turbine during stress testing at Alstom SA's power plant turbine refurbishment facility in Rugby, U.K, on April 29, 2014. Photographer: Chris Ratcliffe/Bloomberg

General Electric Co. (GE:US) made a 12.4 billion-euro ($17 billion) bid for Alstom SA (ALO)’s energy business to open official negotiations with the French company and thwart a potential counterbid from Siemens AG. (SIE)

Alstom’s board named a committee of independent directors to study the binding offer from Fairfield, Connecticut-based GE by June 2, with exclusive talks to follow if that plan wins support, the companies said today. Alstom shares jumped 9.3 percent in Paris trading.

The announcement affirms that GE has the inside track for a deal to bolster its own power business with Alstom’s steam turbines and services, while still leaving the door open for a Siemens offer. GE and Siemens executives are both seeking the blessing of French government leaders, who are trying to extract guarantees for jobs and national energy independence.

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“Siemens will make an offer to Alstom, but let’s be honest, GE is going to win this battle,” Christopher Dembik, a Paris-based Saxo Bank analyst, said in a Bloomberg Television interview. “GE has the best project for Alstom and there is one issue when we look at the Siemens, that actually there are more overlaps and problems for jobs.”

Under the proposed GE transaction, Alstom would keep its transport business, which represents less than 30 percent of sales, and bolster it with the proceeds from the deal.

Manufacturing Push

In buying Alstom’s power assets, GE Chief Executive Officer Jeffrey Immelt is looking to build on a plan to reorient GE toward manufacturing. The GE Capital finance division imperiled the company during the 2008-09 global financial crisis and, since then, Immelt has sought to build up divisions that make capital goods like jet engines, locomotives and power equipment.

GE would be able to tap its foreign cash reserves to finance the deal, a person familiar with the matter has said. GE had about $89 billion in cash at the end of last year, including $57 billion held outside the U.S.

GE said its all-cash offer values the business at 7.9 times pro forma earnings before interest, taxes, depreciation and amortization, adding that the purchase would be accretive to earnings in the first year. GE projected a 2015 closing for the deal.

The bid for Alstom’s thermal, renewables and grid assets gives the business an enterprise value of $13.5 billion and also includes $3.4 billion of net cash. GE will take on 900 million euros in liabilities, including pension commitments, as part of the deal, Alstom CEO Patrick Kron said.

Cost Cuts

“Alstom’s businesses are very complementary in technology, operations, and geography to our power and grid businesses,”Immelt said today. “We expect these actions will generate more than $1.2 billion in annual cost synergies by year five.”

On a conference call, he told reporters that GE would add workers in France.

Alstom shares rose 2.52 euros to 29.52 euros in Paris today. The stock had gained 18 percent on April 24 after Bloomberg News reported the talks with GE and its shares had been suspended since Friday. GE today rose 0.5 percent to $26.89 in New York.

Siemens’s proposal will entail swapping some of its rail assets for Alstom’s energy division and creating two European leaders in the fields. Munich-based Siemens would become one of the world’s largest manufacturers of equipment for power plants and electric transmissions while the companies’ train assets would form a France-based rail industry leader, bringing together the German company’s ICE high-speed trains with Alstom’s iconic TGV.

All-Cash Offer

Siemens values Alstom’s energy business at as much as 11 billion euros, according to people familiar with the matter. The German company proposes exchanging its train- and metro-building assets for Alstom’s signalling business and a stake of at least 19 percent in the remaining French-based rail company, the people said. Siemens declined to comment on the details of its proposal.

As in the U.S., 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.

Cross-Border Deals

Alstom had to be rescued in a 4.4 billion-euro bailout by the state and banks in 2004. The company built France’s power grid and the generators that produce most of the nation’s electricity. The French state has no direct shareholding in Alstom, although the company depends in part on orders from the SNCF railway network and from Electricite de France SA, the electric utility that’s 84 percent government-owned.

Siemens, which was also interested in acquiring parts of Alstom more than a decade ago, said it asked for access to the company’s data and permission to interview the management for four weeks in a letter to the French rival.

The German-U.S. battle for Alstom shows how the world’s largest engineering companies are reshaping their portfolios. Alstom isn’t the only deal that Siemens is working on. Rolls-Royce Holdings Group Plc said yesterday it’s in talks to sell power-generation assets to the German company.

Alstom won’t solicit bids from third parties for its energy business, though may respond to unsolicited offers, it said. If Alstom were to support another transaction, GE would get a “break-up” fee equal to 1.5 percent of the purchase price, it said.

The committee reviewing the GE proposal will be led by Jean-Martin Folz, an independent director at Alstom and former chairman of PSA Peugeot Citroen. (UG)

The GE deal would be subject to merger control and other regulatory clearance, and final approval will be sought from shareholders, Alstom said. Bouygues SA, which owns 29 percent of Alstom, has pledged not to sell its shares until this approval, and has indicated it will support Alstom board’s recommendation, the company said.

GE was advised by Centerview Partners LLC, Credit Suisse Group AG and Lazard Ltd. Alstom was advised by Bank of America Corp. and Rothschild.

To contact the reporters on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net; Richard Clough in New York at rclough9@bloomberg.net; Alex Webb in Munich at awebb25@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net; Ed Dufner at edufner@bloomberg.net Molly Schuetz


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